What happens to a Chicago Tenant's security deposit when a Chicago Landlord files for Chapter 7 Bankruptcy Protection?
Security deposits paid by Chicago's tenants are not dischargeable in Chapter 7 Bankruptcy proceedings.
In Re Bertha McGee, 353 F.3d 538 (December 23, 2003) before the United States Court of Appeals, Seventh Circuit is the dispositive case on this important issue. The Appellate Judge panel included Chief Judge Frank Easterbrook, Judge Diane Wood, and Judge William Bauer of the Seventh Circuit.
These federal judges held the following: That improper withdrawal and misuse of tenant's security deposit amounted to "defalcation while acting in a fiduciary capacity" under the Federal Bankruptcy Code, 11 U.S.C. § 523(a)(4).
As stated by Judge, Easterbrook, "Segregation of funds, management by financial intermediaries, and recognition that the entity in control of the assets has at most "bare" legal title to them, are hallmarks of the trust. These real attributes...bring into play a fiduciary obligation and thus § 523(a)(4). The ordinance [Chicago RLTO] charges landlords with duties to be carried out on behalf of tenants, to protect their entitlement to return of deposits with interest if they keep their part of the bargains." Id at 540-541.
In the event you or anyone you know is nervous or seems to be in a similar situation regarding Chicago tenants rights in bankruptcy, do not hesitate to contact an attorney to review your situation for you. Click here or call 312-924-0278 to contact us today.