A motion for relief from the automatic stay is a creditor’s way of asking the court for permission to eg. foreclose on a house or repossess a car.
- As soon as any type of bankruptcy is filed, an injunction called the automatic stay comes into place
- This injunction means that no creditor can take any action to collect on a debt, or take back any property of the debtor, unless the creditor first asks the court for permission
Here’s what you need to know:
- If a creditor ignores the automatic stay, then the creditor can be held in contempt of court
- The most common motion for relief from the automatic stay are from mortgage and car lenders
- The court usually hears the motion approximately one month after the creditor files the motion
The bankruptcy judge will grant the motion for relief from the automatic stay:
- If the debtor has not been paying the mortgage or car loan
- Has not proposed a Chapter 13 Bankruptcy repayment plan to catch up on the mortgage or car loan
When and why do creditors make motions for relief?
The most common reason for a creditor to make a motion for relief from the automatic stay is that the debtor has filed Chapter 7 Bankruptcy or Chapter 13 Bankruptcy and does not want to use the bankruptcy to keep their house or car.
The bankruptcy petition tells creditors:
- Which property has secured loans against it, such as car loans and mortgages
- Which property the debtor wants to pay for and keep
- Which property the debtor wants to surrender and discharge
What do I need to do?
You need to decide whether:
- You want to keep the collateral (eg. your house or the car)
- You want to surrender the collateral (eg. your house or the car)
You want to keep the property
- If you want to keep the property with a secured loan against it, then you must keep paying the loan
By continuing to make the payments as normal, the creditor won’t make a motion for relief from the automatic stay, and won’t foreclose or repossess your home or car.
If you are behind on your payments and want to keep the collateral, then you need to talk with your attorney about catching up on the loan payments, and possibly making a payment arrangement.
You don’t want to keep the property
- Just tell your attorney that you no longer want to keep the collateral.
Your attorney will tell the court that you don’t want to contest the motion for relief, and the court will give the creditor permission to either start foreclosure or to repossess the car.
- In the case of a foreclosure, you still get the 6-weeks notice before a sheriff’s sale and the 6-month redemption period after the sheriff’s sale
In the case of car repossession, the creditor can send the repo man to take the car as soon as the judge grants the motion for relief.
Can creditors file a motion for relief if I’m current on my loan?
- If a creditor files a motion for relief when you are current on your loan, then you should contact your bankruptcy attorney immediately.
The creditor might have made a mistake.
What is the Benefit of a motion for relief from the automatic stay?
The benefit of a motion for relief from the automatic stay is that the creditor can take back the collateral (the house or the car) more quickly than just waiting for the bankruptcy to end.
Since a Chapter 7 Bankruptcy only takes three months, the motion only gives the creditor two extra months in a Chapter 7 (the motion takes one month to resolve), but a Chapter 13 Bankruptcy can take up to 5 years.
Most secured lenders in a Chapter 7 Bankruptcy case don’t file motions for relief.
They often prefer to wait the three months and then foreclose or repossess after the bankruptcy case is discharged.
This is because:
- There are additional attorney’s fees and complications to filing a motion for relief from the automatic stay
- Foreclosing 2 months sooner is generally not worth very much to the creditor
A car is not going to depreciate much, and a house isn’t going to gain in value, in just 2 months.
Creditors also don’t want to foreclose or repossess your property.
They are not in the business of selling houses and cars; they just want you to make your normal payments and keep the property.
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