When a commercial tenant who is (or is going to be )a defendant in an unlawful detainer action files a petition for bankruptcy, upon the filing of the petition, an automatic stay takes effect and the state court eviction action is stayed until the stay is lifted.
In a commercial lease setting there is one exception to the automatic stay and that is where the commercial lease term has terminated by expiration of its stated term before the bankruptcy filing. See 11 U.S.C. § 541(b)(2). Thus, there would be no stay in proceedings if an eviction action was commenced to regain possession of a commercial space wherein the lease term has already expired.
If the lease term has not expired and the eviction proceedings have commenced, then the commercial landlord’s attorney would be required to go into bankruptcy court and seek relief from the automatic stay by filing a Motion For Relief From Automatic Stay. The conditions for relief requires a showing that the landlord’s interests are not adequately protected through the bankruptcy action, or that the tenant debtor has no equity in the property and the property itself is not necessary for an effective reorganization. See 11 U.S.C. § 362(d).
Once the bankruptcy court has granted relief from the automatic stay, the landlord may go back into state court and complete the eviction action.
If you’re a commercial landlord seeking possession of the commercial premises and have a tenant in bankruptcy, contact us for a free consultation and case evaluation.