Has anyone ever offered a tenant who is behind in rent and has filed for bankruptcy cash-for-keys to get them out? We have a property in Memphis that is being managed by a property manager. The tenant paid May rent, but then we were notified a few days later that the payment was returned for insufficient funds. The PM notified the tenant that if they did not pay within 3 days, they would start eviction proceedings. Tenant didn't pay; we told PM to go ahead with filing for an eviction. Found out from PM today that the tenant has filed for bankruptcy, and, hence, we will need to file a Montion to Lift Stay of Bankruptcy with the bankruptcy court to get permission to proceed with the eviction. According to the PM, it can take up to 3 months to actually get this squatter out of our property (although they are hoping it will be sooner than that). Given that we'd like to get them out of there as soon as possible, we are considering offering them cash-for-keys if they will just vacate the property within a week or so and leave it in decent condition and we won't proceed with an eviction. Has anyone done this? Given that they could vacate at any time if they chose to, I don't see how making them this offer would be illegal, but perhaps I'm wrong on that. I don't know yet whether they filed chapter 7 or 13, or when the bankruptcy filing happened in relation to them being given an eviction notice (we do not have an eviction judgement though). The PM also wasn't clear yet whether May rent was included in their bankruptcy filing. Any input is appreciated.

Evicting a tenant who filed for bankruptcy: cash for keys?

Portsmouth, VA · Member since 2015 · 330 posts · 191 votes

The one time we came across that we just offered the tenant our people and truck and moved them to thier parents house and we had them out with unpaid rent by the middle of the month. And that was that.

1 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

11y

They gave you a bad check , thats a crime , bankrupcy has nothing to do with passing bad checks . Dont offer cash for keys , offer " get out or go to jail "

2 Reply

Andy H.

OP

Investor · Stockdale , TX · Member since 2015 · 89 posts · 28 votes

11y

@Matthew Paul I wish it were that easy. If people actually went to jail for writing a single bad check, the jails would probably be overflowing.

@Mike Sedlacek Thanks for sharing your experience.

I spoke with an evictions attorney today and he advised we not offer cash for keys since they are already in the bankruptcy proceedings. He did say that he didn't think it would take 3 months to get them out, like the PM mentioned. We are still looking at another month and a half though at best.

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Joel OwensBusiness Member

Moderator

Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

11y

Andy you are likely a creditor under the bankruptcy proceeding. The STAY is enacted when they file for bankruptcy.

Actions taken while a person is in bankruptcy could be seen as a COLLECTION ACTIVITY by that court which would be a violation of the automatic stay. This could open you up to potential fines which is likely why the eviction attorney said to leave it alone for cash for keys.

The reality is the tenant is buying time. You will get them out hopefully soon enough. Even if the tenant wasn't in BK you could also face fines for self help evictions. Have to be careful with landlord tenant laws and procedures.

No legal advice given.

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Account Closed

San Jose, CA · Member since 2015 · 4k+ posts · 3k+ votes

11y

Well, the only good news here, is if you go ahead with an eviction, their eviction report will show that they were evicted. They can include a judgment in their bankruptcy, but they can never get rid of an eviction in a database used to report evictions on an eviction report.

So, they may get the last laugh in free rent, but you can get the last laugh regarding ruining their ability to rent from any reputable landlord forever.

And, why the HELL did your manager rent to these people? Anyone with a bankruptcy waiting to happen should never have passed your criteria. Time to fire your PM. And I'd negotiate a deal with the PM that you won't sue them, if they just let you out of your contract with no further fees owed.

This is what my daughter and I negotiated with a worthless PM she hired. It's perfectly legal to bargain with someone for "not suing them," in exchange for whatever. In our case, for agreeing the contract was over and no further money was owed on either side.

My daughter was out thousands due to poor management, but it was easier for her to just settle. Of course, it's up to you if that's what's best for you.

But do not believe your manager if they say they had not one clue this might happen.

1 Reply

Richard C.

Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes

11y

Originally posted by @Matthew Paul:

They gave you a bad check , thats a crime , bankrupcy has nothing to do with passing bad checks . Dont offer cash for keys , offer " get out or go to jail "

And then just hand your bank accounts and possibly your home over to the bankruptcy court. Excellent plan.

Jesus wept.

0 Reply

Andy H.

OP

Investor · Stockdale , TX · Member since 2015 · 89 posts · 28 votes

11y

@Joel Owens Thanks for the explanation. We definitely don't want to do anything that might get us in trouble with the law or delay the process anymore.

@Account Closed Agreed that it is good for the eviction to go on their record as a warning to other landlords. Maybe we can save someone else some pain. We were already planning to fire the PM for other reasons and were about to give them notice when we found out about the bankruptcy. Given that it is their attorney who is handling the eviction and has already filed the motion though, we weren't sure if it is best to wait until we can actually evict the tenant or whether we can switch to a different manager mid-stream.

We, too, were dumbfounded about why they would place such a tenant. What's worse is that we found out that the tenant actually filed for bankruptcy back in January (approx 10 days after signing the lease), but the case was dismissed in March because they didn't appear in court. Then the proceeding was reopened in April. Surely there would have been some red flags in their credit report that would have said "do NOT rent to this person."

1 Reply

Thomas B.

Investor · Memphis, TN · Member since 2013 · 59 posts · 30 votes

11y

Bankruptcy in Memphis rentals is not all that uncommon especially in C/D properties and the "need" can be hidden. Do you review your prospective tenants applications and reports before approval? If not I would highly recommend you do as an extra layer of protection. Your goals and the goals of the property manager are not always 100% inline with each other.

Fortunately for you, the eviction process in Memphis is very landlord friendly.

0 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

11y

Originally posted by @Richard C.:

Originally posted by @Matthew Paul:

They gave you a bad check , thats a crime , bankrupcy has nothing to do with passing bad checks . Dont offer cash for keys , offer " get out or go to jail "

And then just hand your bank accounts and possibly your home over to the bankruptcy court. Excellent plan.

Jesus wept.

Ok , do you think that if you press charges for passing bad checks will come back against the landlord ?

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Paul Choate

Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes

11y

I am a bankruptcy attorney on the debtor's side generally. I have my own rental units.

It sounds like you have not received the notice. You can go to www.pacer.gov and find out if they have actually filed. There are very specific rules on this matter so I would talk to a bankruptcy attorney instead of a general practice attorney so they can give you the specific advice for your situation. Here are a couple of points to consider:

1. As the attorney, it is my job to deal with creditors for my client. You should try to contact the bankruptcy attorney representing your tenant to offer the cash for keys deal. They may actually come up with all of the money to pay you now that they are not paying their other debts.

2. Never contact a debtor after the filing of a case about debt prior to the filing. Your attorney will be able to file a new eviction for the rent accruing after the filing of the case. Let them (the attorney) work out when that can be done as it is a combination of the federal bankruptcy rules and your local landlord/tenant laws. When in doubt- get a lawyer! Bankruptcy laws are very debtor friendly and your actions can be misinterpreted.

On the criminal charges- As a debtor's attorney, I would happily file a contempt of court citation if someone submitted a bounced check to the DA's office after a bankruptcy case was filed. There are some legal reasons why that may or may not be the case, but you don't want to be the one litigating it. I have had a similar situation happen once before but the criminal case started before we filed the bankruptcy so I did not fight it. Criminal cases are not stayed by the filing of a bankruptcy. Your actions might be. As a landlord this is not great but- remember- if they hang around and rack up a few months of rent, that debt may not be discharged in the bankruptcy and you might be able to collect on them!

If I have not made it clear, this is a situation that requires an attorney to take you through so you can 1. protect yourself and 2. get the property back asap.

7 Reply

Account Closed

Investor · Baltimore, MD · Member since 2014 · 1k+ posts · 688 votes

11y

I've had experience with this. a tenant behind many months filed for BK to stop a rent court filing. fine....keep in mind that all debt accrued up to the bk filing date/hearing/ one of those is subject to the bankruptcy filing. Any debt accrued AFTER is not. Further, a bankruptcy filing does not prevent a tenant from paying on that debt in the bankruptcy if they choose. When I received the next months payment towards only that months rent, I filied a rent notice for only the month following the bk filing. the tenant showed back up to court to argue, I countered that she has accrued a debt of unpaid rent consisting of several months . the 1 month just sent was applied to oldest money first and as a result, current months rent remains unpaid. I got the judgment, followed with the eviction, put lady on the street.

1 Reply

Richard C.

Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes

11y

Originally posted by @Matthew Paul:

Originally posted by @Richard C.:

Originally posted by @Matthew Paul:

They gave you a bad check , thats a crime , bankrupcy has nothing to do with passing bad checks . Dont offer cash for keys , offer " get out or go to jail "

And then just hand your bank accounts and possibly your home over to the bankruptcy court. Excellent plan.

Jesus wept.

Ok , do you think that if you press charges for passing bad checks will come back against the landlord ?

Absolutely. See Paul's post. You gave an incredibly irresponsible piece of advice.

0 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

11y

Read Pauls next to last Paragraph

Passing bad checks is a criminal offense , bankrupcy does not erase crimes , only debts .

Pressing or not pressing charges is up to the landlord , this gives the landlord leverage to have the tenant either pay up , move out , or face criminal charges .

I would rather have a tenant give me a bad check than no payment at all ,once they do I have all the leverage .

There would be no reason to hand over my bank accounts or house to someone who commited a crime .

0 Reply

Paul Choate

Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes

11y

@Matthew Paul

I just want to be very clear. I am saying the district attorney and his office would be protected if they continue to pursue a bad check case. I am also saying I, as a debtor's attorney, would pursue a stay violation against a landlord who initiated a criminal matter after the case has been filed. I am not saying it is an easy win. It would be up to your particular federal judge in how he/she interprets that section of the code. The statue is very clear. Any action to collect is a violation. The exception (criminal cases don't count) may or may not be interpreted to cover the accuser(the landlord) in your jurisdiction. (i.e. walking in a saying you have a bad check is not the same as having a bad check, you are making an allegation.) I had this discussion with 3 different judges at a training session (CLE) and they indicated they did not agree with each other. Everyone thought it was a very interesting question. That just means no one wants to spend the time and money to find out what the judge would actually say.

A bankruptcy judge can impose sanctions beyond the monetary amounts of the actual loss. I would never advise anyone to pursue a bad check after the filing of a bankruptcy case. This could be different in your area but I would check with your attorney. The simple fact is any legal action in the bankruptcy court is going to cost so much more than the recovery is ever going to be and this is if you win. If you lose, you may end up in bankruptcy yourself.

note: edited to clarify what part of the law would be in question.

0 Reply

Matthew Paul

Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes

11y

I do some work for a heating oil company in the winter when they are busy . They get a lot of bad checks for heating oil . They dont file civil complaints anymore . They go straight and file criminal charges , swear out a warrant for arrest for passing bad checks . They go after the person for the criminal act of passing bad checks , not the debt . They lost too much time and money doing the civil suits . Bankrupt or not 95% of the people come to the office and pay to get the charges dropped .

1 Reply

Paul Choate

Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes

11y

Most debtors do not list bad checks in a bankruptcy since they are generally for things like utilities, gas, food etc. As a general rule, I tell my clients the bankruptcy will not cover them. We have a program where they can be "picked up" at the DA's office by paying the fees and costs before it becomes a more formal charge. It is probable someone like a utility would not get noticed (sent a letter) in the bankruptcy, have an automated system for handling them and therefore their actions to collect would not violate the stay.

That is not the case for the OP. OP knows about the bankruptcy. OP will probably have legal counsel. If the debtor wanted to make an issue of landlord actively contacting the DA after filing and notice, it would be very easy for a judge to slap punitive damages for a willful violation of the stay. Most debtors don't have the money to pursue it. Doesn't mean it can't happen, just that it's generally not worth anyone's time.

0 Reply

Richard C.

Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes

11y

It's also a violation of the Fair Debt Collection Practices Act.

0 Reply

Richard C.

Bedford, NH · Member since 2012 · 2k+ posts · 1k+ votes

11y

Originally posted by @Matthew Paul:

Read Pauls next to last Paragraph

Passing bad checks is a criminal offense , bankrupcy does not erase crimes , only debts .

Pressing or not pressing charges is up to the landlord , this gives the landlord leverage to have the tenant either pay up , move out , or face criminal charges .

I would rather have a tenant give me a bad check than no payment at all ,once they do I have all the leverage .

There would be no reason to hand over my bank accounts or house to someone who commited a crime .

Knock yourself out.

Here is the only piece of legal advice you should take from an anonymous stranger on the internet: Talk to a lawyer.

My prediction is that if you do talk to a lawyer about your practice here, he will respond with words to the effect of, "Are you nuts?!?!"

0 Reply

Logan Hicks

Business Owner/Investor · Millersville, MD · Member since 2015 · 191 posts · 71 votes

10y

@Paul Choate

I see the argument you are making, and it makes sense.

The only issue I see is there is a fine line between processing the bad check, and the potentials of outcome that could be foreseen.

For instance, the landlord does not directly benefit from a criminal proceeding for instance.

However, if the landlord were to attempt to use that as leverage, it would then become beneficial to them, and thus could be construed as a means to collect a debt. That is how i would argue it.

How I would approach the bad check, is I would hold onto it. Just hold it. Wait till after the proceeding, file it with the DA, because statutes on financial fruad are lengthy, and then also file it with Checks system.

That way, it follows them after the fact, instead of during the process.

personally, Im a blood thirsty bastard, and if you are gonna make me bleed, I want you to feel the blows in kind long after I am a lingering memory in your mind. I want you to curse my name for decades. Lol.

Additionally, as a landlord, since you incurred a fee, technically you can send them to colelctions for the 35 dollar bounced check fee, which will do damage to their credit, and stay on their report for 7 years.

Add an additional collectiosn on their for the collections agency in addition to your own, who is legally allowed to do so (most states allow for original debtor + 1 collection agency to report on a single debt), this makes it substantially more damaging to their credit, as each collections deals at least 20-80 points a piece (diminishing returns).

Add a judgement for rent on top of that, as well as a collection set for the rents itself, and a separate set for the eviction costs (because those are separate from the actual rents), and you have pretty much a death kneel to their credit for upwards of 7 years, 10 if they end of fighting or disputing anything after the fact.

All in all, yes, I am an *******, but any tenant who wants to effectively steal from me is getting whats coming to them, while me operating in line with the letter of the law, to the fullest extent.

P.S. if you really wana be a dick, sell each debt to a separate collection agency, so they can each call a maximum of three times per day, for a total of 12 calls per day legally.

0 Reply

Paul Choate

Attorney · Shawnee, OK · Member since 2013 · 350 posts · 230 votes

10y

http://www.ca6.uscourts.gov/opinions.pdf/15a0662n-06.pdf

@Logan Hicks this is a recently decided case where a landlord sent a letter to the debtor's attorney threatening criminal prosecution and was hit with a punitive judgment of $7500 because of his attitude.

In my opinion, Everything you mentioned is a violation of the stay. It does not matter if it is a day or ten years after the filing of the case. As a debtors attorney, I would pursue a stay violation claim.

Bankruptcy is not something to play around with. It protects the debtor by design.

0 Reply

Mike CumbieBusiness Member

REALTOR® · Brockport, NY · Member since 2015 · 3k+ posts · 4k+ votes

10y

Originally posted by @Paul Choate:

1. As the attorney, it is my job to deal with creditors for my client. You should try to contact the bankruptcy attorney representing your tenant to offer the cash for keys deal. They may actually come up with all of the money to pay you now that they are not paying their other debts.

I like that idea personally. Sometimes you have to write off a bad deal and accept you are losing something. By getting them out of the house with minimum damage you are mitigating your risk (IMO) and can go on with your life, find new tenants.

Do a rough number to figure out how much in court fees/time/atty fees/lost usage of the property by trying to get in line behind everyone else they owe. Compare that to how much you would make by having them gone in a week on a cash for keys option.

Good Luck!

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Evicting a tenant who filed for bankruptcy: cash for keys?

Evicting a tenant who filed for bankruptcy: cash for keys?

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