A commercial tenant’s bankruptcy filing can turn a landlord’s day upside down. You might find yourself holding a bankruptcy notice wondering what to do next. Let us help you understand the protections and limits that apply to you as a property owner the moment that petition hits the docket. At the Grand Rapids law firm of SBS Law PLC, we help commercial building owners and property management companies throughout Michigan.
If you know your rights and remedies as a landlord, you are able to make faster, better decisions. Speed matters because bankruptcy court deadlines do not bend for confusion.
What is an Automatic Stay?
The moment your tenant files, whether under Chapter 7, Chapter 11, or the smaller business focused Subchapter V, an automatic stay takes effect. It is a federal injunction, not a Michigan court rule, and it stops most collection efforts cold. Phone calls demanding payment, letters threatening late fees, applying a security deposit against old debt, none of that is allowed without the bankruptcy court’s permission first.
Rent that came due before the petition was filed becomes what’s called a prepetition claim, frozen in place alongside the tenant’s other old debts. You cannot send a late notice for it. You cannot call them about it. You cannot quietly apply the deposit against it without asking the court first. Violating the stay may cause the court to apply sanctions, sometimes significant, for chasing frozen obligations.
Tenant Obligation to Continue Paying Rent
Rent that accrues after the filing date is treated differently. Federal bankruptcy law generally requires a tenant, or the trustee standing in the tenant’s shoes, to keep performing lease obligations arising after the case begins, including paying rent.
However, courts can grant a short deferral, sometimes called a rent holiday, for obligations arising in the first 60 days of the case. This gives a tenant room to organize its finances before rent starts flowing again. The rules are strict, and even a hardship argument does not allow a tenant to delay payments beyond 60 days.
Commercial Landlord Options
If your tenant stops paying post-petition rent, or if the property itself is at risk, a lapsed insurance policy, a building sitting unsecured, whatever the concern, you’re not without options. A landlord can file a motion for relief from the automatic stay, asking the bankruptcy court for permission to proceed with eviction or collection efforts outside the case.
Assuming the stay gets lifted, or the tenant walks away from the lease and possession reverts to you, Michigan’s own eviction rules still apply. Michigan law does not allow landlords to force a tenant out through self-help measures like changing locks or cutting utilities. Only a court order enforced by law enforcement can lawfully remove someone from the property. That means even after clearing the bankruptcy hurdle, you’re looking at Michigan’s summary proceedings process through the district court in the county where the property sits.
Time Is of the Essence – Contact SBS Law PLC Today
Most landlords wait too long to call a lawyer about a tenant’s bankruptcy filing. By the time they reach out, deadlines have passed and options have narrowed considerably.
Call our skilled landlord and property management attorneys at the first sign of trouble with a tenant. Every situation plays out a little differently depending on lease language, the bankruptcy chapter involved, and how quickly a landlord moves. Contact us today to get the stellar representation you need.