Court Lifts Bankruptcy Stay, Clearing the Way for Eviction

The court granted the landlord’s motion to lift the stay to permit the landlord to execute the warrant of eviction. We discuss here the court’s reasoning in addressing what it referred to as the “novel issues involved in this matter.”

The court began by summarizing the relevant Bankruptcy Code provisions. Section 362(b)(22) provides that the automatic stay pursuant to §362(a)(3) does not apply to the “continuation of any eviction, unlawful detainer action, or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and with respect to which the lessor has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(a)(3) provides that the filing of a bankruptcy petition automatically stays “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.”)

Section 362(l), however, establishes a limited exception to Section 362(b)(22), both sections having been added to the Bankruptcy Code in 2005. It provides that the automatic stay applies for a 30-day period after the filing of the bankruptcy petition if the debtor files with the petition, and serves on the lessor, a certification under penalty of perjury that “under nonbankruptcy law applicable in the jurisdiction, there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment of possession after that judgment of possession was entered.”

The debtor must also deposit with the clerk of the court with the bankruptcy petition any rent that would become due during the 30-day period after the filing of the bankruptcy petition. Per Section 362(l)(2), in order to extend the stay beyond the original 30-day period, within that period, the debtor must cure, “under nonbankruptcy law applicable in the jurisdiction, the entire monetary default that gave rise to the judgment under which possession is sought . . . “

The court noted that “[c]ase law is silent on [the] question” of whether the §362(l) “safe harbor” reinstates the automatic stay when the judgment of possession was based in any way on a non-monetary default. The court pointed out that §362(l) by its terms refers to “cur[ing] the entire monetary default that gave rise to the judgment of possession.” Thus, the court concluded, “[i]f the judgment of possession was based solely on a non-monetary default, there is no basis to argue from the language of the statute that the automatic stay can be reinstated under §362(l).”

The court then posed the following questions:

In the court’s view, the “language of the [Bankruptcy] Code does not provide clear answers to these questions” and the “legislative history also does not shed much light on the questions.” After quoting from the legislative history, however, the court did comment that “[w]ith respect to §362(l), Congress’s focus was clearly upon allowing the stay to be reinstated if state law permits a cure of a monetary default; no mention is made of a non-monetary default.”

The court discussed §§362(b)(23) and 362(m), which were added to the Bankruptcy Code at the same time as §§362(b)(22) and 362(l) and which, the court noted, were addressed in the legislative history together with the latter two sections. Section 362(b)(23) provides a mechanism for a lessor of residential property to terminate the automatic stay based upon a tenant’s “endangerment of such property.” The procedure involves the lessor certifying under penalty of perjury that an eviction action based on that ground has been filed or that the debtor, during the 30-day period preceding the date of the filing of the certification, “has endangered property.” The court commented that the statute does not define the term, but that endangerment of property “would seem to fit with seeking eviction based on Collyer Conditions.”

Section 362(m) provides that if the tenant contests the lessor’s certification, then the court is required to hold a hearing with the burden of proof on the debtor to demonstrate that the “situation giving rise to the lessor’s certification . . . did not exist or was remedied.” Citing In re Éclair Bakery Ltd.,⁵ the court, however, noted that where a pre-petition judgment of possession is based on circumstances that meet the test of “property endangerment,” the bankruptcy court is precluded from relitigating these issues. The court concluded that: