Path Two:
A Motion for Relief From the Stay
Where the exceptions do not apply, a landlord can ask the bankruptcy court to lift the stay under Section 362(d). The court “shall grant” relief on two independent grounds. The first is “for cause,” including a lack of adequate protection of the landlord’s interest. Although the Code does not define “cause,” courts consistently treat a tenant’s failure to pay rent as cause, because the right to timely rent is a property interest entitled to adequate protection. See In re Benton, 662 B.R. 517 (Bankr. S.D.N.Y. 2024). The second applies to acts against property: relief is warranted where the tenant has no equity in the property and the property is not necessary to an effective reorganization. This is where the type of bankruptcy matters. In re Benton, 662 B.R. 517 (Bankr. S.D.N.Y. 2024) the court found the tenant had no equity in
a rental property, and that the property was not necessary to an effective reorganization because the tenant had filed under Chapter 7, a liquidation, not a reorganization. By contrast, in a Chapter 11 or Chapter 13 reorganization, a tenant who retains a valid lease may keep the stay’s protection while working through the case, and courts weigh the prejudice to the estate before lifting it. Even then, “cause” may support modifying the stay for a limited purpose, for example, letting a state or city court determine exactly how much back rent is owed. A threshold question drives all of this: if the lease was validly terminated before the filing, the tenant has no interest to protect, and there is cause to lift the stay. See In re Citrus Tower Boulevard Imaging Ctr., LLC, 460 B.R. 334 (Bankr. N.D. Ga. 2011).
THIS IS WHERE THE TYPE OF BANKRUPTCY MATTERS.
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