Both Chapter 7 and Chapter 13 bankruptcy provide an important, immediate relief from creditors trying to collect from the debtor. As soon as one of our bankruptcy attorneys files your case, you will get the benefit of the Automatic Stay, which prohibits nearly all of your creditors from collection activity while your bankruptcy case remains open. Such collection activities include pending foreclosure sales, evictions, wage garnishments, law suits, bill collection calls and letters, and so on. All such attempts to collect debts are “stayed” or frozen until the Automatic Stay is lifted, either at the conclusion of the bankruptcy case, or earlier as through a Motion for Relief from Stay.
This post is intended to explain what a relief from stay motion is and under what circumstances such a motion may be filed. When a bankruptcy debtor understands why a creditor may file a Motion for Relief from Stay in her case, and what will be the result of having such a motion filed, then she will not be alarmed if such a motion is filed by one of her creditors.
In Chapter 7 bankruptcy, the Automatic Stay in most cases lasts until the case is closed—generally, within 3-4 months after filing. In Chapter 13 cases, the stay remains in effect throughout the 3 or 5 year plan. However, in either type of bankruptcy case, secured creditors can file a Motion for Relief from Stay in which they ask the bankruptcy judge to lift the Automatic Stay. Although the Automatic Stay remains in effect as to all the other creditors, the secured creditor winning a relief from stay motion, may thereafter continue in its collection efforts against the debtor despite the bankruptcy.
Motions for Relief from Stay are most often brought by secured creditors in order to continue with a home foreclosure or to take possession of leased property. They are frequently brought by mortgage lenders in Chapter 7 cases whenever the debtor states his or her intention to surrender the property in question. Once the stay is lifted, the creditor may proceed under state law to complete their foreclosure of the property. In Chapter 13 cases, too, if the debtor falls behind in making regular mortgage or lease payments, the creditor will bring a Motion for Relief from Stay in order to go forward with a foreclosure or repossession of the property in spite of the bankruptcy case.
Partly because we see so many foreclosures at our bankruptcy law firm in San Jose, and partly because so many homeowners in bankruptcy find it to be in their best interests to voluntarily surrender property because it is so severely underwater, Motions for Relief from Stay are commonly filed in our clients’ bankruptcy cases. Note that one important exception exists under the Bankruptcy Code. Purchase money loans from auto lenders secured by the vehicle may repossess your car without filing a motion for relief from stay if you do not sign a reaffirmation agreement.
But it seems that no matter how prepared the client is to expect such a motion, that client still tends to get quite nervous when he is actually served in the mail with a very legalistic looking court document listing a hearing date and time in a specific courtroom before a bankruptcy judge.
In most cases, I remind our clients that the client has already decided to voluntarily surrender or give up the secured property in question, which the creditor filing the motion wants to foreclose or repossess. I assure them that where the client has decided to surrender the property, the client does not need to attend the hearing on the Motion for Relief from Stay, and we do not need to oppose it. The main source of anxiety for clients in this context is the fear that they will have to attend a court hearing before a judge. But where the debtor has chosen to give up the property because he or she cannot feasibly bring the loan current and make the regular payments after the case is over, there is no practical reason for us to oppose such a Motion for Relief from Stay under these circumstances, and there is no reason for the debtor to appear at the hearing.
The court will grant such a motion, and sometime thereafter the creditor will proceed with the foreclosure or repossession. I remind clients as well that once the Automatic Stay is lifted, the lender may still take weeks to months before they actually foreclose upon the property.