The automatic stay is one of the most powerful protections provided to debtors in a bankruptcy proceeding. The stay acts as an injunction that prohibits creditors (including landlords) from commencing or continuing any proceeding against the debtor which could have been commenced prior to the bankruptcy. Applied to landlords, the automatic stay prohibits efforts to collect unpaid rent, or seek eviction, setoff, lease termination or foreclosure, among others.
It is important for landlords to realize that the automatic stay becomes effective without notice or a hearing. Were a landlord (or any creditor) to be found in violation of the automatic stay, the debtor-tenant may be able to recover actual damages from the landlord, including attorneys’ fees. If the violation is found to be intentional, the debtor-tenant may recover punitive damages.
In order to avoid the consequences resulting from violating the automatic stay, landlords should seek relief from the stay by filing a motion with the bankruptcy court. Under Section 362 of the Bankruptcy Code, creditors can seek relief from the automatic stay “for cause.” An example of “cause” includes the tenant’s failure to pay rent.