California Court Discusses When a Claim Accrues Relative to Bankruptcy Proceedings

One of the many benefits of bankruptcy is that it stays parties from litigating claims against the debtor. The stay is not limited to actions involving creditors attempting to recover debts but also precludes any claim that may result in a judgment against the debtor. Notably, though, the stay only applies to causes of action that arise prior to the filing of a bankruptcy petition and does not bar post-petition proceedings. Recently, a California court issued an opinion discussing how courts determine when a cause of action accrues in a matter in which the debtor sought to vacate a judgment obtained by his landlord. If you can no longer manage your debts, you may be able to seek relief via bankruptcy, and it is in your best interest to speak to a knowledgeable California bankruptcy attorney regarding your options.

Facts of the Case

It is reported that in 1986, the debtor entered into a residential lease for an apartment. From 2005 through 2015, the apartment was owned by the landlord. The lease agreement permitted the debtor to approve or reject any improvements or repairs to the apartment. The debtor repeatedly exercised this option, which ultimately led to the landlord filing a lawsuit for declaratory relief against the debtor.

Allegedly, one year prior to the landlord’s lawsuit, the debtor had filed for Chapter 13 bankruptcy. He did not notify the landlord of the proceedings or seek a stay of the landlord’s claim, however, but merely requested that he wait until after the bankruptcy case had closed to seek any judgment. The debtor then filed a contempt action against the landlord for continuing to litigate the action for declaratory relief after learning of the bankruptcy matter. The court granted the request to hold the declaratory relief judgment void, but the debtor nonetheless appealed, arguing it should be vacated.

Determining When a Claim Accrues

On appeal, the debtor argued, in part, that the landlord’s action was barred pursuant to the federal bankruptcy laws because it constituted a pre-petition claim. In the context of bankruptcy law, to determine when a claim accrues, the Ninth Circuit courts employ the fair contemplation test. Under this test, claims arise when a claimant can reasonably or fairly contemplate its existence even if the cause of action has not yet accrued under the applicable law.

In the subject case, the debtor argued that his rent payments arose when he originally signed the lease in 1986. The court was not persuaded by this argument, noting that when he filed the petition for bankruptcy, he was renting his apartment pursuant to a month-to-month lease, which constitutes a new contract each month under California law. Thus, the court found that the landlord’s action was a post-petition rather than a pre-petition claim.

Meet with a Skillful California Bankruptcy Attorney

Bankruptcy offers many people relief from overwhelming debts and hope for regaining financial stability in the future. If you wish to seek a discharge of your debts, it is smart to meet with a lawyer as soon as possible to assess whether you may be eligible to file for bankruptcy. Attorney Matthew D. Roy can inform you of your options and help you to determine the best manner to proceed to pursue your desired outcome.  You can contact Mr. Roy through the online form or at (916) 361-6028 to schedule a meeting.