Why Creditors Request Relief from the Automatic Stay
Filing bankruptcy stops creditors’ collections against you immediately. But sometimes, a creditor will request relief from the automatic stay and receive permission to collect anyway.
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Under 11 U.S.C. §362, an automatic stay is imposed against creditors for “the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title.” Essentially, the automatic stay stops most kinds of creditor attempts to collect their debts against you, your income, and your assets. It is one of the most important and immediate benefits of bankruptcy. There are relatively few special situations where the automatic stay protection does not apply. (Examples include certain family court debts, proceedings, and some tax procedures.) Today, we focus on how creditors can react to bankruptcy’s automatic stay and request relief from the automatic stay. This is completed by asking the court if the automatic stay and its protections will remain in effect or whether the protections continue to apply.
Creditor Requests Relief from the Automatic Stay
When you think of “relief” in bankruptcy, what comes to mind is relief from your creditors. At the heart of the bankruptcy petition are the words, “I request relief.” (See page 6 just above the signature line of Official Form 101.)
However, the meaning of “relief” in this phrase, “relief from the automatic stay,” is very different. This phrase refers to a creditor’s “relief” from the protection that the automatic stay gives you. A creditor challenges your right to that protection by asking the bankruptcy court for “relief from the automatic stay” (or simply “relief from stay”).
This might also be referred to as a creditor’s motion to lift the automatic stay injunction.
Most Creditors Don’t Request Relief from the Automatic Stay
Creditors get relief from stay only if they qualify under certain legal circumstances. (See Section 362(d) of the U.S. Bankruptcy Code about creditor requests for “relief from the stay.”)
So don’t be concerned that all or many creditors will try to take this protection away from you.
Most Chapter 7 “straight bankruptcy” cases are completed without a creditor requesting relief from the automatic stay. Requests happen but usually will not change the outcome.
These challenges are more common in Chapter 13, “Adjustment of Debts.” That’s because these cases last much longer and often involve changes to the payment terms of secured debts, resulting in more negotiation opportunities and legal wrangling. Still, this usually only involves one or two creditors. Even in Chapter 13, there are many cases with no such challenges.
Secured Creditors Requesting Relief from the Automatic Stay
Most secured creditors will only request relief from the automatic stay when you decide to walk away from/surrender your secured debts (e.g., mortgage, car loan). Creditors who ask for relief from stay do so to get permission to take back collateral. Often, their goal is to put conditions on the automatic stay to encourage you to keep making payments on the collateral-secured debt. Here’s an example:
You file a Chapter 7 case when you are two payments behind on a vehicle loan. You want to keep this vehicle and have said so in your bankruptcy paperwork. Because of your payment history, the lender has filed a motion for relief from the automatic stay (requesting relief). It wants to push you to catch up on those late payments quickly. It also wants court permission to repossess the vehicle if you don’t make those payments or fall behind later. The lender, you, and your bankruptcy lawyer enter into negotiations. If necessary, the issue goes to the bankruptcy judge for a decision. Usually, the result is a negotiated agreement on the terms for catching up and keeping current on the payments. If you don’t comply, you will likely lose the automatic stay protection and your vehicle. If you comply, you keep your vehicle.
Other Creditors Requesting Relief from the Automatic Stay
It is much less common, but sometimes a creditor without a secured debt has reason to ask for relief from stay. Here’s an example.
- You file a Chapter 13 case right after being served with an eviction lawsuit by your residential landlord. The automatic stay stops the eviction. Your Chapter 13 payment plan shows how you will catch up on the unpaid rent payments and remain current. The landlord wants to proceed with the eviction. The automatic stay will likely continue and stop the eviction if your payment plan shows how you’ll comply with the rental agreement. Then you do what your plan says you will.
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