What happens when a bankrupt tenant leaves personal property behind?
Often times when a tenant files for bankruptcy, the trustee not only rejects the lease but also abandons any personal property left over by the tenant pursuant to 11 U.S.C. 554(a). The California landlord who expects to use the value of the abandoned property to offset amounts owed by the bankrupt tenant will be sorely mistaken.
To begin with, the trustee is not abandoning the personal property to the landlord (as one might expect), but is instead abandoning the property to the debtor-tenant. The debtor-tenant then has any rights it would otherwise have to the property had it not filed for bankruptcy.
California law is very friendly to such a tenant. The landlord must first provide 18 days notice to the tenant of its right to reclaim the property. If the property is worth less than $300 (or $750 for commercial tenants), the landlord has no further obligations following the notice period and can sell it, keep it or throw it away. If the value exceeds those thresholds, however, the landlord can sell the property and be reimbursed for related costs, but any excess has to be turned over to the county. Hence, no possibility for an offset, even if the tenant owes rent to the landlord and has no intention of reclaiming the property.
Please click here for a more detailed explanation of California law in this area.
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