Impact of a Tenant’s Bankruptcy During Lease Term

Terminating Tenancy

A tenant’s bankruptcy or insolvency does not automatically terminate an unexpired lease of real property. It does not matter whether the lease expressly authorizes early termination in the case that the tenant becomes insolvent or bankrupt, because these types of lease clauses are unenforceable.  [11 USC § 365(e); In re Cole (9th Cir. BAP 1998) 226 BR 647, 652.]

When a tenant files for bankruptcy this typically triggers an automatic stay of “the enforcement against the debtor or property of the estate of a judgment obtained before commencement of the bankruptcy case and “any act to obtain possession of property of the estate or of property from the estate . . .” [11 USC  §§§ 362 (a)(1), 362 (a)(2), & 362 (a)(3).]  Accordingly, as of the tenant’s filing of bankruptcy, the landlord cannot commence an unlawful detainer action, serve a three-day notice to quit, or take any further steps to prosecute a pending unlawful detainer. [Ibid.]  Further, the master lessor cannot take action against a tenant sublessor if it would adversely affect the possessory rights of a subtenant debtor who filed the bankruptcy petition.  [See In re 48th St. Steakhouse, Inc. (2d Cir. 1987) 835 F.2d 427, 430).]

There are two exceptions to the automatic stay related to residential unlawful detainers.   First, the automatic stay does not stay eviction when an unlawful detainer judgment has been obtained before the tenant’s bankruptcy filing for residential property in which the tenant debtor resides as a tenant under the lease. [11 USC  § 362 (b)(22).] Note, that this exception does not take effect for 30 days and is essentially a 30-day stay. [11 USC  §§§ 362 (b)(22), 362 (l)(1), 362 (l)(5).] Second, the automatic stay does not apply to an eviction action seeking residential property where “the debtor resides as a tenant under a lease . . . based on endangerment of such property or the illegal use of controlled substances on [the] property . . . “ [11 USC  § 362 (b)(23).]  Further, this exception applies fifteen days after the landlord serves the required certification to the tenant. [11 USC  § 362 (m)(1).]

For more information, contact Schorr Law, APC at 310-954-1877 or

Click on the categories below to read other related blog posts.

Share Button
Tagged with: , , , , , ,
Posted in Lease Bankruptcy, Leases

Zachary D. Schorr’s Expert Appearance on the Dr. Phil Show

Zachary D. Schorr’s Expert Appearance on ABC’s Nightline

Contact Schorr Law

Super Lawyers

Zachary Schorr Superlawyers

Zachary D. Schorr has been named to the Southern California Super Lawyers (Rising Stars) list for attorneys in Real Estate for 5 straight years - 2012, 2013, 2014, 2015 and 2016. Each year, no more than 2.5 percent of the lawyers in the state receive this honor. In 2016 he was also included as one of the top 100 lawyers in Southern California in this category. The selection for this respected list is made by the research team at Super Lawyers.

Need Representation?

If you are currently involved in a real estate dispute, either commercial real estate or residential, and are looking for a Real Estate Attorney in Los Angeles with a cost-effective, results oriented approach designed to meet your case's specific needs, contact the attorneys at Schorr Law. Our real estate firm has the specific knowledge and experience necessary to get you the best possible results.

AVVO 10.0

Zachary Schorr Avvo Rating

Avvo Clients’ Choice Award Recipient

Zachary Schorr Avvo Client's Choice Award