Wednesday, July 20, 2016

The Dreaded Bankruptcy Tenant

The Dreaded Bankruptcy Tenant

I get asked questions about tenants in bankruptcy pretty often. I have to admit, I don’t really know all that much about it or I simply cannot wrap my mind around the rules well enough to commit them to memory. Bankruptcy is one of the things I dealt with least often in operations. When I decided I wanted to write an article about it for this blog, I did what any responsible member of the self storage industry would do. I stalked Jeff Greenberger and Scott Zucker looking for articles on the topic. What I learned is, in the event of a tenant filing bankruptcy, you will need an attorney to help you navigate the process. Please do not attempt to deal with this on your own. There are different types of bankruptcies and each one has different rules. There may be actions taking place that you have no knowledge of and they could be harmful to you. It is also very easy to make a misstep concerning a tenant in bankruptcy and you most likely won’t even know you have done it. After all of my research, I have come up with the following steps you will need to complete if you have any reason to even suspect a default tenant has filed for bankruptcy.

  1. Stop all collection proceedings. When a bankruptcy is filed, an Automatic Stay is automatically applied to the goods involved in the bankruptcy. You cannot send them any late notices. If your late notices are automated, please make sure no notices go to your tenant in bankruptcy. You also cannot make collection calls and you certainly cannot sell the unit at auction. If the unit was not over locked prior you finding out about the bankruptcy, it is safest not to over lock once you are made aware of the filing. The good news is with most forms of bankruptcy, your tenant must stay current on rent from the time of the filing forward and you should begin receiving rent when it is due.
  1. Hopefully, you will get a letter letting you know who the bankruptcy has been filed and who the trustee is, if any. If there is a trustee, you should contact them right away. They might abandon the property to you.
If someone hints they have filed bankruptcy, but you have not received any paperwork, you can try to find out if they have in fact filed bankruptcy. There is a website called PACER. It stands for Public Access to Court Electronic Records. You do have to sign up for an account; however, you will not incur any fees unless you do several searches per month.

Unfortunately, if you are unable to find any information, you still need to err on the side of caution until you have confirmation that a bankruptcy has not been filed. That is where step 3 comes in.

  1. CALL YOUR ATTORNEY. Will you have to pay them? Yes, but it will be less than it will cost you if the bankruptcy trustee decides to sue you for something. In the event of that, you will be involved in full fledged court proceedings. Your attorney will be able to help you file a proof of claim with the courts to verify the bankruptcy filing. This claim will also allow you to identify the storage facility as a creditor in the bankruptcy, in the event it was not reported by your tenant. There are also a ton of other options you could request from the courts and this is where things start to get confusing for those of us not familiar with bankruptcy laws. So again, I say, this is the time to call your attorney.

I realize this article is not especially helpful for an operator that has a tenant in bankruptcy. Hopefully, I have provided you some useful information for what you need to do on a preliminary basis and I have convinced you it is imperative to use an attorney to help you navigate this process. I am also going to provide links to several articles by Scott and Jeff. Presumably, you will be just as confused as I am after reading them and realize that this situation really requires the assistance of legal counsel.


About the Author - Cheli Rosa - Director of Marketing, Auctioneer, Company Administrator, Social Media Manager, Mom, Kite Flyer, Pinterest Addict and Amateur Scrapbooker.

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