Question

Karen, a talent agent, has hit hard times and needs cash. She borrows $50,000 from her mom. In January 2019, mom realizes that Karen will not be able to pay her back and forgives the $50,000 debt, telling her daughter she does not need to pay her back. Soon thereafter in February, Karen gives her mom her diamond necklace, valued at approximately $10,000 as a thank you gesture for forgiving the loan. Karen eventually files bankruptcy under Chapter 7 in May 2019. In her bankruptcy schedules she does not list her mom as a creditor nor does she list the transfer of the necklace to her mom. At a meeting of creditors, one of Karen's creditor tells the Trustee about the necklace because he saw Karen wearing it. Karen explains that she gave it to her mother as a thank you for a loan that was forgiven and she a just forgot to schedule it.

Assume the corporation leased office space and Karen personally guaranteed the lease. If the corporation has not paid rent for the two months prior to Karen filing bankruptcy, does the Automatic Stay protect the corporation from eviction

Answer 1

The automatic stay from Karen's personal Chapter 7 bankruptcy does not protect her corporation from eviction, as the automatic stay applies to the filer and not separate entities such as corporations for which the filer may have personal guarantees.

Step-by-step explanation:

The automatic stay in bankruptcy is a legal provision that halts all collection activities, including eviction, against the debtor once the bankruptcy petition is filed. However, when it comes to a corporation, the automatic stay applies to the entity that filed for bankruptcy, which in this case is Karen as an individual, not the corporation itself.

Therefore, if Karen personally guaranteed the lease but it is the corporation that has not paid the rent, the automatic stay associated with Karen's Chapter 7 bankruptcy filing does not protect the corporation from eviction.

The corporation is a separate legal entity, and unless it also filed for bankruptcy, the landlords may continue with eviction proceedings against the corporation for nonpayment of rent. Only if the corporation had filed for bankruptcy would the automatic stay prevent the landlords from evicting the corporation due to the lease guaranty by Karen.