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YOUR TENANT HAS FILED FOR BANKRUPTCY PROTECTION - Effects on PHA Policies & Evictions

YOUR TENANT HAS FILED FOR BANKRUPTCY PROTECTION - Effects on PHA Policies & Evictions. Bankruptcy Update Clare Ann Fitzgerald – General Counsel for Housing Authority of the City of Pittsburgh (“HACP”). INTRODUCTION. About HACP : owns and operates 5000 units of low income public housing,

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YOUR TENANT HAS FILED FOR BANKRUPTCY PROTECTION - Effects on PHA Policies & Evictions

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  1. YOUR TENANT HAS FILED FOR BANKRUPTCY PROTECTION - Effects on PHA Policies & Evictions Bankruptcy Update Clare Ann Fitzgerald – General Counsel for Housing Authority of the City of Pittsburgh (“HACP”)

  2. INTRODUCTION About HACP: • owns and operates 5000 units of low income public housing, • administers nearly 1000 units of low income public housing in mixed finance developments, • administers 6000 Section 8 housing choice vouchers, • serves a combined total of over 35,000 people. • Approximately 10% of the residents of the City of Pittsburgh receive some type of housing assistance through the HACP. • HACP’s waiting lists include over 6000 families.

  3. IMPACT OF BANKRUPTCY ON THE OPERATION OF A HOUSING AUTHORITY Pre-Bankruptcy Act of 2005 • HACP had a fairly straightforward process for eviction under Pa law. Posting takes place by site managers. At the time, 30 days for monetary breaches and 30 days for non-monetary breaches (social, criminal, failure to recertify). • Next, a proceeding before a district justice, a less formal process, handled in most cases by site manager, then to common pleas for arbitration, and upon appeal, trial de novo non-jury. Between 2002 and 2005, HACP had close to 150 active bankruptcy cases, many of them from serial filers. • Tenants frequently filed a bankruptcy petition (usually Chapter 13) within the ten days between posting of the writ for possession and execution. Filing occurred no matter the underlying breach, whether social, criminal or financial. Then all activity would cease on the underlying eviction often for the maximum of five years. This time period could be greatly lengthened by tenants who had their petitions dismissed without prejudice for failure to make payments or some other reason, only to refile and thereby restart the five year clock. • In most cases, HACP was the only creditor. Most if not all cases involving HACP as creditor were sent to same bankruptcy judge. The sentiment prevalent in Pittsburgh courts was that HACP housing is “housing of last resort”. Therefore, courts were reluctant to dismiss a bankruptcy case for non-payment, whether trustee or HACP filed a motion to dismiss. As long as tenant appeared at a hearing on the dismissal motion and expressed a willingness to make the plan work, no dismissal. Tenants sometimes built balances of $10,000 or more. Only after three or four amendments to plan, and a demonstrated inability to fulfill the terms of the plan, the bankruptcy court encouraged conversion to chapter 7.

  4. A Step Forward for Housing Authorities Johnson v. HACP, 52 Fed. Appx. 589 (Nov. 25, 2002) : • Facts: Plaintiff, non-HACP resident, filed for chapter 7 relief on Jan. 12, 2001. Twelve days later, Johnson applied for public housing with HACP. HACP denied the application on Feb. 16, 2001. Debtor filed a motion for contempt in the bankruptcy case, alleging violations of sections 362 and 525 of the Code. • Debtor sought an order requiring HACP to accept application retro to the date of filing application, actual and punitive damages, and attorney fees. Bankruptcy court ordered May 16, 2001 that application be accepted retroactively, no damages. Debtor appealed to the District Court.

  5. A Step Forward for Housing Authorities Johnson District Court Opinion: • “The Court also recognizes, and shares as well, the concern of the Housing Authority that the potential exists for a debtor to file for bankruptcy not with the intent of obtaining a discharge of debts but simply so as to obtain public housing assistance. To counter the preceding concern, which were it to be realized would constitute an abuse of bankruptcy process, the Court rules that the Housing Authority can, without fear of violating either the automatic stay or section 525(a), delay acceptance of a bankrupt debtor’s public housing application until the conclusion of that debtor’s section 341 creditor’s meeting. . . . “

  6. A Step Forward for Housing Authorities Johnson Third Circuit Opinion: • Dismissed appeal as moot. Housing Authority may delay acceptance of debtor’s public housing application until the conclusion of the 341 meeting of creditors, as long as acceptance was retro to date of application. Accepted HACP’s cautious approach.

  7. A Step Forward for Housing Authorities (continued) • Second, neither 525(a) nor 362(a) precludes a governmental unit from postponing action on a debtor’s application for housing until court determines whether debts are dischargeable, so as to deter abuse.

  8. Setback for Authorities • Biggs v. HACP: 2007 WL 654247 (W.D. Pa. Feb. 28, 2007): appeal of Nov. 14, 2006 bankruptcy court order granting HACP motion for relief from stay, permitting HACP to commence eviction proceedings for failure to pay rent and rent arrearage. District court REVERSED, holding that relief from stay and eviction is precluded by section 525(a).

  9. Setback for Authorities (continued) Facts: • Debtor was HACP resident since March 1995 with now 13 year old son. In Dec. 2003, Debtor accumulated rent arrearage and parties entered into agreement for repayment. • In Feb. 2004, Debtor could not pay and therefore, HACP instituted eviction. • On May 24, 2004, Debtor filed for chapter 13. Under bankruptcy plan last payment was on Sept. 7, 2005. • HACP filed motion for relief from stay on Sept. 21, 2006 due to $3,700 arrearage. • Debtor converted to Chapter 13 on October 23, 2006. • Lease was rejected by Trustee after 60 days. • Bankruptcy court granted relief from stay without opinion

  10. Setback for Authorities (continued) Biggs District Court Opinion cited In re Stoltz, 315 F.3d 809 (2d Cir. 2002) involving the Brattleboro Housing Authority. Therein, Second Circuit said a public housing lease is a grant “similar” to a “license, permit, charter, or franchise”; and eviction was “solely because” of discharged prepetition rent and thereby precluded by section 525; section 525 is the more specific provision than the section permitting landlords generally to move forward with eviction and so trumps it.

  11. Setback for Authorities (continued) Question: Is the current public housing lease a grant that is “similar” to “a license, permit, charter, or franchise”? District Court’s Answer: Yes In re Johnson, 250 B.R. 521, 530 (Bankr. E.D. Pa. 2000)(“grant” was the two rights to lease a residence and be charge rent reductions for public houisng residents) In re Curry, 148 B.R. 966, 972 (Bankr. S.D.Fla. 1992)(eviction violates 525(a) because it would revoke governmental grant of rent subsidy) In re Bacon, 212 B.R. 66, 74 (Bankr. E.D. Pa. 1997)(525(a) only protects future right to participate in public housing program)

  12. Setback for Authorities (continued) Question: is the eviction sought in such a situation “solely because” of the discharge of prepetition defaults? District Court’s Answer: Yes Robinson v. Chicago Hous. Auth., 169 F.R. 171, 176 (Bankr. N.D. Ill. 1994)(distinction between eviction solely because debtor failed to pay dischargeable debt and eviction because debtor stopped paying rent). In re James, 198 F.R. 885, 888 (Bankr. W.D.Pa. 1996)(distinction between eviction solely because of failure to pay dischargeable debt and eviction because lease no longer in effect as rejected; because of authority’s duty to taxpayers to ensure tenants pay rent, and because of authority’s obligation to other applicants to make housing available to them). In re Bacon, id., (calling distinctions illusory).

  13. “Fresh Start” Concept Biggs district court cited In re Stoltz, 315 F.3d 809 (2d Cir. 2002) (noting that if lease is not found to be “other similar grant” then an evicted debtor would likely become homeless, which is not conducive to economic survival). “Rejection” Concept Under the Bankruptcy Code is Not the Same as “Termination” Under Pa law, the lease is not terminated until there is actual eviction of the tenant and possession by the landlord. Therefore, the Authority’s argument that the rejection is what led to the eviction is not accepted. The Authority at the least refused to renew the lease.

  14. No Harm to Authorities Biggs district court Opinion noted: No ability to seek bankruptcy protection again for eight years. 11 U.S.C.A. section 727(a)(8). Status of Biggs HACP appealed the district court’s decision to the Third Circuit. Briefing is complete, but Court has neither heard argument nor ruled.

  15. Impact of “Bankruptcy Abuse Prevention Consumer Protection Act of 2005” (“the Act”) Pre-Act, evictions proceeding against tenants who filed chapter 7 or chapter 13 were stopped by the “automatic stay” provision of the Bankruptcy Code.

  16. Impact After October 17, 2005, the effective date of the Act, • Tenants who file bankruptcy petitions are now required to inform the bankruptcy court if there is a judgment for possession against them. • The tenant is then required to pay the judgment and costs and verify this to the court or the stay will be terminated. • Once the stay is terminated, HACP can then proceed with eviction as if the bankruptcy petition had never been filed. • If the tenant files for bankruptcy protection prior to the Authority obtaining a judgment, the tenant is still protected by the automatic stay. • “The Act” amendment to the Bankruptcy Code 11 U.S.C. §§ 101 has affected how our tenants file for bankruptcy and how HACP practices Bankruptcy Law. • The automatic stay provision is further modified to discourage bad faith filings by lifting the automatic stay for cases filed within a year after a previous case is dismissed. Section 707 of the Code: • All filers for protection under Chapter 7 are subject to a means test which raises a presumption of abuse if at the time the petition is filed the adjusted monthly income exceeds the threshold amount. • The means test of §707(b) is applicable in Chapter 13 cases if the debtor files a Chapter 13 petition but has income which exceeds the median income for a comparably sized family in Pennsylvania.

  17. CHAPTER 13 CASES Option 1 • When Housing Authority has judgment for possession against tenant who filed bankruptcy and tenant does not cure the default owed to the Authority, the Authority can: a) move to evict to regain possession of unit; b) Wait to evict; allow the tenant to stay and obtain income attachment from the court, allowing a cure through the Chapter 13 plan. Option 2 • Require court ordered wage attachment, which would not leave the responsibility of payments to the debtor. This assures that payments are made through the plan to address on-going rent and any arrearages • Require that the tenant complete a reasonable plan assuring that arrears and current rent is paid on time. In allowing for a reasonable plan, Authority does not have to terminate the eviction; however we cannot act on this. At this point, the Authority monitors to make sure that that rent and plan payments are provided. • Action under this policy is to improve rent collections, which subsequently improves tenant and site manager relationships. This also results in fewer write-offs and fewer vacancies. • If the Authority does not receive payments under the plan, we can then proceed to evict; however, HACP’s experience recently is that we are able to resolve problems. Most of the Bankruptcy tenants who have filed Bankruptcy petitions realize this is a last resort attempt at avoiding eviction proceedings and curing the debt. When faced with the possibility of having the bankruptcy dismissed by the Trustee most debtors will respond to the Affidavit of Default with Payment or file a response in order to explain plan defaults and avoid Bankruptcy dismissal.

  18. CHAPTER 7 CASES • When the tenant fails to complete the Chapter 13 plan, they move to convert to a chapter 7 • Debts owed to the Authority will more than likely be discharged and written off Authority books. • Once the tenant is evicted, the Authority becomes another unsecured creditor, and will not receive any payments through the Trustee. In the Chapter 13 cases, Authority is treated as a priority creditor since we provide housing; however, the risk factors are still present in either case. HACP must weigh the risk of increased arrearages and write-offs against the possibility of recovery by income attachments.

  19. Practical Impact of the 2005 Act on HACP After Two Years • Tenant filings have dropped dramatically from ten per month to 1-2 per month. • Less likelihood of an accumulation of arrearages. • Tenants take the process more seriously, in light of the fact that they will be unable to refile for eight years. • In cases where HACP already has obtained a judgment against the tenant, fewer filings in light of the fact that, under the 2005 Act, a filing after judgment does not result in a stay.

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