Rental owner ‘mistakens’ deposit for spending money

Will tenant lose $2,500 security deposit in landlord's bankruptcy?

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Gloria Nelson and her mother, Linda Mitchell, rented a single-family house from Bertha McGee. The tenants paid a $2,500 cash security deposit to McGee. Local city ordinance requires landlords to place tenant security deposits into a segregated interest-bearing account, which McGee failed to do. Purchase Bob Bruss reports online. When a dispute arose about the condition of the premises, McGee began an eviction. But the tenants voluntarily moved out, filing a counterclaim for return of their $2,500 security deposit. However, McGee then spent the security deposit. She said she anticipated the judge would decide she didn't have to refund the $2,500 to her tenants. But the judge ruled the tenants had complied with their obligations and McGee owed double damages, plus interest ($5,208) for failing to return the security deposit after the tenants vacated. Unable to pay the $5,208 judgment, landlord McGee filed Chapter 7 bankruptcy. She sought a discharge from her $5,208 judgment to he...