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View Full Version : So your Apartment Building is Filing for Chapter 11...


Flymaster
04-02-2009, 05:12 PM
I came home today to find a notice that I am one of the 20 largest unsecured creditors to an entity filing for chapter 11 bankruptcy, and that I have a chance to serve on a reorganizing committee. The entity is my apartment complex. Their only debt to me is my security deposit, and, I suppose, my right to live here through the end of April.

Questions:

A) How much time does such a committee take of my life? More than 5 hours? If so, is it worth it for $1300 of debt?
B) When something like this goes under, do I lose my residence? I imagine not...I imagine I might lose my security deposit, but Iím probably good to stay here for 6 months, right?
C) If I do lose my security deposit, Iím probably out of my lease, too, right?
D) Does this affect me in any way over the next 5-6 months?

Desert Nomad
04-02-2009, 05:42 PM
I am in the same boat. My 200-unit apartment complex received a Notice of Default that expired a few days ago and it looks like the place will go up for auction at the courthouse in a few weeks. We have a lease for another 9 months and a deposit (paid by credit card). We'll see.

Xema
04-02-2009, 06:36 PM
Iím probably good to stay here for 6 months, right?
It's highly likely - though by no means absolutely certain - that whatever person or organization ends up owning the building will be very pleased to have tenants in it (and to receive their rent checks).

Kimmy_Gibbler
04-02-2009, 07:04 PM
In Chapter 11, the debtor manages the bankruptcy estate and the objective is reorganization not liquidation. A landlord debtor-in-possession has the right under 11 USC 365 to reject an unexpired lease, but under 11 USC 365(h)(1)(A)(ii):
if the term of such lease has commenced, the lessee may retain its rights under such lease (including rights such as those relating to the amount and timing of payment of rent and other amounts payable by the lessee and any right of use, possession, quiet enjoyment, subletting, assignment, or hypothecation) that are in or appurtenant to the real property for the balance of the term of such lease and for any renewal or extension of such rights to the extent that such rights are enforceable under applicable nonbankruptcy law.

Xema, however, is quite right; an apartment complex is worth more as a going concern than as a vacant building. There are circumstances where the outcome might be different (if the debtor sells free and clear under 363 and the purchaser wants you out, the 7th Circuit has held 363 trumps). Of course, as a tenant, you could request the court impose conditions on a 363 sale to protect your interests. If you are one of the 20 largest unsecured creditors, your landlord is not in terrible shape; most likely, it has defaulted on its mortgage for the complex.

If you join the creditors' committee, the Bankruptcy Code will allow you (the committee), with the Court's approval, to hire an attorney payable out of the assets of the debtor. This lawyer will then bear the brunt of the time commitment.

Note: I am not your lawyer and this message is for general information purposes only. Nothing in this message is to be considered as either creating an attorney-client relationship or as rendering of legal advice for any specific matter. You are responsible for obtaining such advice from your own legal counsel. No reader should act or refrain from acting on the basis of any information contained in this message without seeking appropriate legal or other professional advice on the particular facts and circumstances at issue.

Harmonious Discord
04-02-2009, 07:08 PM
Deposits are not their assets. It's supposed to be held but remains yours and bankruptcy shouldn't affect it as far as I know. Maybe a lawyer can comment on that. You may have to sue to get it back if they didn't keep the deposit held for you and used it instead.

2nd Law
04-03-2009, 03:02 AM
Deposits are not their assets. It's supposed to be held but remains yours and bankruptcy shouldn't affect it as far as I know. Maybe a lawyer can comment on that. You may have to sue to get it back if they didn't keep the deposit held for you and used it instead.

Depends on where you are. I seem to recall that Chicago's Landlord Tenant ordinance required landlords to hold tenant's security deposit in something like an escrow account, and the ordinance imposes some pretty stiff penaties for landlords who don't. In principal you're right though--that's the tenant's money the landlord is supposed to be holding. Many landlords co-mingle funds, though.

As for suing them, can't do that if they filed for bankruptcy, have to file a claim.

WhyNot
04-03-2009, 09:07 AM
You have a lease until the end of April, and that's it, right? Then you may not have a home May 1. It's impossible to say until you know who's going to buy the building and what they want to do with it - and even then, in my personal experience, they may lie.

While bankruptcy/foreclosure didn't enter into it, I've lost two apartments now to simple sales. The first, the new owners simply decided they wanted to raise the rent far beyond reasonable (a more than $500 per month increase!) and we said no thanks.

The second, the new new new owners (the place changed hands four times in the five years we lived there) initially told us they planned to make no changes at all and would honor our existing lease and renew at the end under similar terms, and then decided to convert to condos. We were given, "as a courtesy", first crack at buying our unit, which we declined. While the new owner was required to honor our existing lease, he wasn't required to make it particularly pleasant for us, and three months into being the only tenants in an 18 unit building (which didn't feel very safe) and surrounded by construction noise and dust, we approached him with an offer to sever the lease early with no penalty. He was delighted, as having us there was a pain in the ass for him.

So I'd advise getting your ducks in order and cracking open a newspaper to find a contingency plan. You might not have to move when your lease is up, but there's no guarantee.

Flymaster
04-03-2009, 09:51 AM
No, my lease is until the end of September. But I'm only paid up for April.

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