If you own commercial real property and your tenant files bankruptcy, there are certain remedies you can pursue to make sure that you get paid for any rent that accrues after the bankruptcy petition is filed.
Post-petition rent is an unsecured claim, but not all unsecured claims in bankruptcy are treated equal. Bankruptcy code 507(a) provides the order in which priority unsecured claims will be paid. Domestic support obligations, like child support and alimony, are always paid first, but in business bankruptcy cases, that’s almost never an issue.
The second priority claims, and, in business cases, often the first, are administrative expense claims under bankruptcy code section 503(b). “Administrative expenses” include “the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.”
Essentially, if a Chapter 7 trustee or the debtor-in-possession in a Chapter 11 case uses your property for any amount of time after the case is filed, you will be entitled to compensation for their use of your property. It may not necessarily be the market rate, depending on whether the Chapter 7 trustee uses the property or a debtor in a Chapter 11 reorganization, but that is beyond the scope of this post. All you need to know is that it is possible for you to be compensated if you property is being used during the course of a businesses or personal bankruptcy.
So How Do I Collect Rent?
You are going to have to hire an attorney to file a motion or application to pay an administrative expense claim in the bankruptcy case your tenant filed. This may cost a little money, but many times the expense will be well worth the investment. Bankruptcy Code section 365(d)(3) provides that the “trustee shall timely perform all the obligations of the debtor . . . arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1).” Some courts have taken this to mean that a motion may not need to be filed to collect on post-petition rent; however, the safest approach, especially in the Northern District of Georgia, is to file an application with the court to allow these claims to be paid.