Connecticut Judge Rules That Security Deposits Cannot be Discharged in Bankruptcy

In the November, 2012 US Bankruptcy case In re: Anthony Hall, the judge decided that a landlord filing for bankruptcy could not discharge the debt of an unreturned security deposit. The court noted that a landlord holding a security deposit pursuant to Conn. Gen. State. 47-21 does so in a fiduciary capacity, as such, that debt cannot be discharged under bankruptcy codes.

Specific circumstances of this case was that the landlord admitted to the court that he had withdrew the security deposit prior to the termination of the tenancy and had used those funds for personal purposes. The facts also showed that the debtor had twenty five years of experience as a landlord and  should have been aware of his fiduciary responsibilities.
 
This case is a reminder that security deposits much be carefully managed by landlords since judgments against landlords for security deposit related matters exceed the threshold of personal debt and may not be dischargeable with bankruptcy. As a landlord, you should have a solid management practice in place for the accounting of security deposits and be extremely conscientious about meeting the statutory requirements of returning the deposits in a timely manner.

Yona Gregory