My Landlord Filed For Bankruptcy, Is My Deposit Gone Forever?

by | Jan 7, 2011 | Security Deposits

Ran across an article of yours that is similar to my problem, only real difference is that I know for sure my old landlord, has filed for bankruptcy and the case is active. After he did not return my security deposit after I moved out, I sued him in small claims court and the hearing date has been scheduled.

After the landlord was served, he wrote a letter to the judge asking for the case to be dismissed because he filed for bankruptcy, and therefore isn’t responsible for his debt to me. The hearing is still set, though.

My question to you, is there anything else I can do to get my money back from him? I’ve contacted the trustee only for them to tell me to get some legal council. They shut me down right away and told me to file as a creditor.

Is there a right question to ask them? The thing is, I don’t believe I am actually a creditor because I did not loan money to the landlord. The landlord is not supposed to spend that money unless damage is done by me. No damage was done and he never gave me a letter stating damage was done.

Honestly, I’m not really sure what my rights are, as I’ve never been in a situation like this before.

Can the judge still find my landlord guilty and require him to pay me or will the judge throw the case out? What are my rights? Anything I can do to improve my case? Maybe quote some civil code to the judge?

I’m a little out of my depth here. Bankruptcy law is as complex as San Francisco landlord/tenant law. You might do well to consult a specialist or, at the very least, read a do-it-yourself bankruptcy book like the various offerings at Nolo Press. Please read my disclaimer below and proceed to read this at your own risk.

Bankruptcy law provides an “automatic stay” of any proceedings to create or enforce a judgment after the “debtor” has filed for bankruptcy. I can’t see anything in the long list of exceptions that could exempt your claim, but remember, I’m not a bankruptcy lawyer.

That means that the judge in your small claims case should take the case off calendar until you move the bankruptcy court to lift the stay. If you decide to do that, you really will need to consult a bankruptcy lawyer.

I would still attend the hearing and see what happens. I think it is highly likely that the judge will table the case. If she asks you to present evidence and eventually rules in your favor, I still think the judgment could be voided. You couldn’t collect it anyway because you will still have to deal with the bankruptcy court.

So why bother to go? You may be able to get some information from the judge’s comments. In the unlikely event the judge rules in your favor (in a written judgment you will receive after the hearing), you may be able to use that when you present your case to the bankruptcy court.

Remember that you can ask for two times the security deposit as statutory damages if the landlord, in bad faith, fails refund the security deposit. (California Civil Code §1950.5(l)) If the small claims judge finds that the landlord owes you statutory damages, you could show that to the bankruptcy court to justify claiming three times your deposit. I don’t know if this will work but it’s worth a shot.

The good news is that California Civil Code §1950.5(d) states, “Any security shall be held by the landlord for the tenant who is party to the lease or agreement. The claim of a tenant to the security shall be prior to the claim of any creditor of the landlord.”

That’s about as clear as a law can get. I read it as meaning that you go to the top of list of creditors and that your claim has priority over anybody, including a foreclosing bank. I also think the law implies that your landlord retained your deposit in bad faith.

You are a creditor for purposes of bankruptcy proceedings. As you can see, the law recognizes that you are more than a creditor in that the landlord misappropriated (stole) your money. Regardless of the outcome of the small claims case, you should file as a creditor with the bankruptcy court. You should do that immediately!

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