Recovering Security Deposit from a Bankrupt Landlord

[medhmb]

My question involves bankruptcy in the state of: California

I recently received a Notice of Chapter 7 Bankruptcy regarding my former landlord. Apparently I received this notice because they still owe me $1,600 of my $2,600 security deposit.

To summarize, we were renting a house from them before they went into foreclosure. We moved just before the bank took over the property, so that we wouldn't be in a position of having no place to live and limited time to find one - we couldn't take that stress on with our 3kids. Our landlord owed us a $2,600 security deposit, of which we finally received $1,000 just before receiving the bankruptcy notice.

This doesn't seem fair, as we are not creditors. We didn't loan them this money - we paid it as a security deposit 3.5 years ago when we moved into the house. Can we be treated as a creditor in this situation and what should we be doing to protect our rights to this money? Have we lost it now that they have filed bankruptcy?

Thanks for any help you can give!

[Mr. Knowitall]

Did you make a claim for the security deposit with the bankruptcy court? Absent something to create an exemption, for example fraud by the landlord in obtaining the security deposit, unfortunately it likely will be dischargeable - although California Civil Code Sec. 1950.7 gives your claim for return of a security deposit priority over most other claims in bankruptcy. (Unless a security deposit is traceable into a specific account, e.g., a trust account where the landlord escrows deposits, you ordinarily have an unsecured claim only for damages in the amount of the security deposit.)

[medhmb]

I haven't done anything yet, as I am not even sure how to proceed. The paper we received didn't tell us what we needed to do. It said we should contact a bankrupty attorney, but we're not a creditor - we just want our money back...so I don't know how they expect us to afford a BK attorney for this.

Wow - that's a real shame. I have looked into BK myself at one point, but luckily, we were able to avoid it (at least, for the time being). I think BK is a great alternative for people in a bad situation but I also think it's really screwed up to allow these people to keep our security deposit! I know they're struggling, and we had to rush to find somewhere else to live because of it (and believe me, we barely get by ourselves). We had to put down $6,000 to move into another rental and this $2,600 our prior landlord had was alot of money to us.

What a shame - thanks for your help.