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Ninth Circuit Eliminates Automatic Stay Protection for Last-Minute Tenant Bankruptcies

Tenants facing eviction have long had the ability to stay in the rented premises a few days (or even weeks) longer by filing a bankruptcy petition, which invokes the powerful, far-reaching “automatic stay.” Even after the creditor-friendly amendments to the Bankruptcy Code in 2005, a tenant had a 30-day automatic stay by checking the appropriate box on the bankruptcy petition and tendering the rent that would become due in the next 30 days.

However, on January 8, 2016, the Ninth Circuit Court of Appeals gave landlords a significant new advantage – and took away a tool frequently used by desperate tenants. By a 2-to-1 decision in Eden Place LLC v. Perl (In re Perl), 2016 U.S. App. LEXIS 246 (9th Cir. 2016), the Ninth Circuit reversed a lower court decision that had stood since 2005 and ruled that a residential tenant against whom (1) an unlawful detainer judgment had been entered and (2) a writ of possession had been issued, had lost all legal and equitable rights in the property. The Ninth Circuit reasoned that because the tenant had no remaining interest in the property when the bankruptcy case was filed, the automatic stay never applied to the occupancy of the property.

This landmark Ninth Circuit decision removes the ability of tenants to stay in the property a bit longer by filing a bankruptcy petition just ahead of being evicted by the Sheriff. Under the decision in Perl, the Sheriff can enforce a writ of possession if the bankruptcy petition was filed even one day after issuance of the writ of possession, even if the property has not been posted for lockout yet. This means that a tenant whose property has been posted by the Sheriff for eviction can no longer delay the eviction by filing a bankruptcy petition. The Perl decision is good news for landlords, who will no longer have to seek relief from the automatic stay to enforce a writ of possession. For distressed tenants, the lesson of Perl is to plan ahead by filing bankruptcy before an unlawful detainer judgment is entered and writ of possession is issued.

Donahoe & Young LLP assists landlords and tenants with unlawful detainer cases, and debtors and creditors with bankruptcy proceedings. For further information on how this change in the law might impact your situation, please contact us for a no-cost initial consultation.

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