A creditor might want to pursue your co-debtor, protect itself from violating the stay, or take some other action other than collect money.
So far we’ve covered four reasons why creditors ask for “relief from stay” other than for permission to repossess collateral. Creditors seek permission to finish a lawsuit or other legal proceeding to determine:
- whether you owe any debt or a claim to the creditor
- the amount of that debt or claim, assuming you agree that owe something
- whether you owe a debt that can be paid by insurance
- whether a debt you owe can be discharged (written off) in bankruptcy
Today we’ll cover three more reasons that a creditor may ask the bankruptcy court for “relief from stay”:
- to get a court determination whether the creditor’s intended actions would violate the automatic stay
- to get relief from the co-debtor stay, to pursue someone else liable on your debt
- to get permission for taking some other action not involving payment
1. To Find Out If Creditor Would Violate the Automatic Stay
It’s not always clear whether or not a certain action by a creditor would violate the automatic stay or not. There are potentially serious penalties for a creditor if it does violate this law. So a creditor may file a motion for relief from stay to put the issue before the bankruptcy court. The creditor does not take its proposed action until getting the court’s determination that it is acting legally.
The U.S. Bankruptcy Code Section about the automatic stay is complicated. It contains 8 subsections describing the kinds of collection actions that your filing of bankruptcy stays, or stops. It contains 28 exceptions, creditor actions that the automatic stay does not stop.
So a creditor may file a motion for relief from stay as a precaution. It wants to make sure it can take the action that it wants to take.
You can simply not respond if you don’t object, and the creditor gets the bankruptcy court’s validation that it wanted.
Or if you do object, you respond through your bankruptcy lawyer to the creditor’s motion for relief. The court then decides whether the creditor’s proposed action would be a violation of the automatic stay. And if it would be, the court usually also decides whether the circumstances nevertheless entitle the creditor to get relief from the stay.
2. The Co-Debtor Stay
If you and someone else are both fully liable on a debt, your filing of a Chapter 7 “straight bankruptcy” case usually does NOT provide any automatic stay protection preventing debt collection against that other person. The creditor can pursue its legal rights against that other person as if you hadn’t filed bankruptcy.
However, your filing of a Chapter 13 “adjustment of debts” DOES impose a “co-debtor” stay. Creditors are prevented from pursuing the other person(s) liable on your consumer debts, within certain circumstances. So if you file a Chapter 13 case, creditors who want to pursue your co-debtor have to first file a motion in court asking for relief from the co-debtor stay.
3. Permission for Other Action Unrelated to Paying the Debt
When you have a contract with a creditor, you often have contractual obligations not directly related to paying the debt.
The rental of a residential or commercial premise is one good example. If you owe back rent, the creditor/landlord is of course interested in getting paid. But it may be just as interested in getting you out of the residence or business premises so that it can rent it to another tenant. So the creditor/landlord could file a motion for relief from stay to get permission to evict you. But that motion would usually not ask for permission to collect the back rent. That’s because the monetary obligation is being dealt within the bankruptcy process along with your other debts.
(There are special rules about the automatic stay involving residential rentals. So be sure to discuss this with your bankruptcy lawyer if it pertains to you. See Section 362(b)(22 and 23) of the Bankruptcy Code.)