Motion for Relief from Automatic Stay

BankruptcyWhen a debtor files bankruptcy an automatic stay goes into effect.  This stay is like a federal injunction preventing creditors from collecting debt from the debtor or taking action against his assets.  The stay continues to protect the debtor until the bankruptcy case is over or until it is lifted by the court.

Creditors can lift the automatic stay by filing a motion for relief.  A motion for relief basically asks the court to remove the stay protection so that the creditor can pursue collection efforts.  Creditors don’t get this type of relief simply because they ask for it.  They must have legal grounds for requesting the stay be lifted.

Lenders with secured claims are the most common filer of motions for relief from the automatic stay.  When a debtor files a Chapter 7 bankruptcy case, they can keep secured property if they continue to make payments for the debt that is secured by the collateral.  For example, if a bankruptcy filer wants to keep their house after filing bankruptcy then he has to pay his mortgage payment.  If the borrower stops making payments then the lender can file a motion for relief stating that the debtor is not paying the note and the creditor is not adequately protected.  In this type of situation the bankruptcy court will usually lift the stay.

In Chapter 13 cases, bankruptcy courts are less likely to lift the stay if the debtor is making a good faith effort to make payments.  The courts, at least in Texas, seem to prefer that the parties resolve these types of motions by agreement.  For example, if a debtor is behind on mortgage payments due after filing the bankruptcy case then the mortgage lender will file a motion for relief.  In order to resolve the motion the lender will usually agree to allow the debtor to cure the missed payments through additional payments paid directly to the creditor or by modifying the plan to pay the missed payments through the Chapter 13 plan over the remaining months of the plan.  However, these agreements usually state that if the debtor defaults on the agreement then the automatic stay lifts without the need for another hearing.