toledoblade.com --

When Toledo construction worker George Myrice Jr. filed for bankruptcy last month, it stopped collection action by creditors, including those of his landlord.

Judge C. Allen McConnell signed an order suspending eviction proceedings begun by Windy Lake Properties LLC two weeks earlier after Mr. Myrice allegedly missed two rent payments on a house on Berdan Avenue in West Toledo.

But, under bankruptcy reforms that took effect last week, the ability of tenants to delay eviction by filing for bankruptcy will be curtailed.

The reforms will change multiple sectors of the housing industry.

Among those affected are residential landlords and tenants, shopping center owners, condominium and homeowners associations, and people who try to shield assets by squirreling them away in pricey residences in Florida and other states with debtor-friendly laws. The reforms did not affect previous bankruptcy filings.

Overall, the new law is a victory for real estate interests, said Megan Booth, senior policy representative for the National Association of Realtors.

"It was a success for the real estate industry," she said.

Key changes include:

Retailers who file bankruptcy will get a maximum of seven months to decide whether to abandon a particular shopping center location and void the lease. Under the old law, debtors received two months, but judges routinely extended the deadline for months and even years.

Fees owed to condominium and home-owners associations are not dischargeable in a Chapter 7 case, as they have been in the past.

Residential tenants will no longer be able to delay or avoid eviction by filing bankruptcy. The eviction process can continue as long as a judge grants possession of the property to the landlord before the filing, or if the eviction is for damage to the property or use of illegal drugs.

Under the old law, wealthy people contemplating bankruptcy invested money in pricey homes in debtor-friendly states like Florida, which has liberal homestead exemption laws protecting family residences from creditors. Now, debtors will be able to protect only $125,000 in equity in homes bought within the past three years. For longer-term residences - those owned more than 40 months - exemption limits of the state will apply.

Neither Mr. Myrice nor his attorney returned calls seeking comment last week. But the case likely wouldn't be affected by the bankruptcy reforms because Judge McConnell hadn't yet granted possession to the landlord when bankruptcy was filed.

Judge McConnell, who hears eviction cases in the city of Toledo, said he gets five to 10 cases a year in which tenants file bankruptcy. Delays often last up to 90 days or until the matter gets "sorted out," he said.

Rental housing executive Jim Ostrowski said he can see how the reforms would help landlords facing such a situation.

"But for us it has not been an issue to this point," said Mr. Ostrowski, president of Gerdenich Realty Co., Sylvania.

Bob Houck, of Houck Properties, agreed. "I have not gotten caught," he said. "We screen our people very heavily and have minimum income requirements of two or three times rent."

Ms. Booth, of the national Realtors group, said the amendment is aimed at debtors who abuse the bankruptcy system rather than "people going through hard financial times and looking for a little breathing room."

She also defended the changes affecting retail leases.

"While a retailer is making a decision about whether to stay, the rest of the shopping center is in turmoil," she said. This is especially so when the retailer is an anchor tenant. Because of so-called co-tenancy agreements that trigger steep rent discounts for surrounding shops when an anchor leaves, shopping center owners sometimes face financial ruin when an anchor exits.

Condominium and homeowners associations welcome the bankruptcy reforms, said Dave Brown, who manages 22 complexes in the Toledo area.

Under the old law, debtors were often able to discharge $1,000 to $2,000 in unpaid maintenance fees through bankruptcy, said Mr. Brown, of Seaway Asset Management.

"It was a big issue," he said. "When people don't pay their condominium fees, the other owners are left to kick in and pick up the slack," he said.

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.

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