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Recent amendments may prove beneficial to lessors

In 1978, Congress enacted the Bankruptcy Code. The Bankruptcy Code provided for an “automatic stay” prohibiting most creditor actions (including evictions) against debtors upon the filing of a bankruptcy petition. The stay was “automatic” because it went into effect upon the filing of the petition.

The debtor did not have to take any further action to obtain the protection of the automatic stay. Stringent penalties awaited the willful violator of the automatic stay. Although lessors could seek relief from the automatic stay, many lessors were forced to wait extended periods of time to regain possession of leased premises.

Earlier this year, Congress enacted significant amendments to the Bankruptcy Code, most of which went into effect on October 17, 2005. Under the Bankruptcy Code, as amended, the automatic stay remains in effect (along with stringent penalties for the head-strong violator). However, the recent amendments to the automatic stay provisions may prove to be beneficial to lessors. One of these amendments (the subject of this article) enables lessors, under certain circumstances, to pursue eviction actions more easily against debtors under residential leases.

The statutory language of this amendment is somewhat convoluted and difficult to dissect. In essence, however, it shifts the burden to the debtor to continue the automatic stay in situations when the residential lessor has obtained a judgment for possession prior to the bankruptcy filing. Under this amendment, the automatic stay does not apply when a lessor under a residential lease obtained a judgment for possession of the property prior to the filing of the bankruptcy petition. Thus, if a lessor has obtained a judgment for possession of the property prior to the bankruptcy petition, then the lessor should be able to take action to enforce the judgment for possession without having to file any pleading with bankruptcy court.

So far so good. However, this seemingly lessor-friendly provision is subject to a catch. The amendment provides that the debtor can, in effect, invoke the automatic stay against the lessor for 30 days by filing with the bankruptcy petition a certificate, under penalties of perjury, and serving the certificate upon the lessor. The certificate must state two things. First, it must state that circumstances exist under applicable non-bankruptcy law under which the debtor would be able to “cure” the entire monetary default after entry of the judgment for possession. (It is unclear to what extent Mississippi law allows for such a “cure.” One statutory provision, Miss. Code Ann.

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