Rochelle's Daily Wire

Bankruptcy Judge David S. Jones of New York explained when the automatic stay does or does not come into effect under Sections 362(b)(22) and 362(l), if the debtor was saddled with a judgment of eviction before filing.

The landlord won a judgment of eviction before the individual debtor filed a chapter 7 petition. Alongside the petition, the debtor filed a certification under oath stating that he was entitled to possession of the unit because he had cured monetary defaults and deposited rent with the court for the first 30 days after filing.

The problem was that the debtor had paid nothing and deposited nothing.

The landlord rushed into court with a motion seeking a declaration that the automatic stay never came into effect because the certification was false. Alternatively, the landlord wanted a modification of the automatic stay to evict the debtor.

In an opinion on March 19, Judge Jones explained why the stay had come into effect, even though the certification was false. For two reasons, though, he allowed the landlord to evict.

The opinion by Judge Jones is an explication of Sections 362(b)(22) and 362(l), which were added to the Bankruptcy Code in 2005 “to provide greater protection to landlords and prevent tenants from filing bankruptcy to forestall an eviction.”

Section 362(b)(22) provides that the automatic stay does not apply to

the continuation of any eviction . . . proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant . . . 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.

To level the playing field and protect debtors who intend to pay rent, Section 362(l) provides that the stay will not come into effect under Section 362(b)(22) until 30 days after filing

if the debtor files with the petition and serves upon the lessor a certification under penalty of perjury that — (A) under nonbankruptcy law . . . , there are circumstances under which the debtor would be permitted to cure the entire monetary default that gave rise to the judgment for possession, after that judgment for possession was entered; and (B) the debtor . . . has deposited with the clerk of the court, any rent that would become due during the 30-day period after the filing of the bankruptcy petition.

The landlord argued that the automatic stay never came into effect because the certification was false. Judge Jones disagreed, saying that the landlord’s theory is “inconsistent with the statutory language of Section 362(l)(1), which, read literally, does not require actual payment of the required deposit; rather, Section 362(l)(1) merely requires the filing of a ‘certification’ as specified by subsections (A) and (B) of Section 362(l)(1).”

“In other words,” Judge Jones said, “under the statute’s plain language, the mere filing of such a certification delays the applicability of Section 362(b)(22) for thirty days or until otherwise determined by the Court — even if the debtor did not make the required deposit.”

Judge Jones said that the “Code nevertheless gives landlords a swift remedy in the event a debtor files a false certification.” He said that “Section 362(l)(3)(A) permits a landlord to file an ‘objection’ to the debtor’s certification and seek relief from the court.”

“If the court upholds the objection,” Judge Jones said, “Section 362(b)(22) applies immediately,” making it unnecessary for the landlord to obtain stay relief. As a result, he said that “the Landlord is free to pursue eviction or similar state-court remedies.”

For belt and suspenders, Judge Jones also gave stay relief to the landlord.