Creditors sometimes have grounds to ask for permission to resume or start collection action against you in spite of your bankruptcy filing.
In our last blog post we talked about the “automatic stay.” It’s one of the most important benefits of filing bankruptcy. It’s certainly the fastest, going into effect immediately when you or your lawyer files your bankruptcy case. The automatic stay stops virtually all attempts by creditors to collect their debts against you, your money, and your property.
But sometimes this protection is only temporary. Creditors sometimes have some say about whether the automatic stays in effect, its protection ends, or is modified. See Section 362(d) of the U.S. Bankruptcy Code.
“Relief from the Automatic Stay”
When you think of “relief” in bankruptcy you most likely think of your relief from creditors. A couple blog posts ago we said that at the heart of the bankruptcy petition are the words, “I request relief.”
But when used in this phrase, “relief from the automatic stay,” the meaning is essentially the opposite. The phrase refers to a kind of relief that benefits a creditor. When a creditor wants to challenge the protection the automatic stay is giving you, it asks the bankruptcy court for “relief from the automatic stay.” (A shorthand form of that is simply “relief from stay.”) It’s asking for permission to pursue either the debt in general or some specific aspect of your obligation.
Most Creditors Don’t Ask for Relief from Stay
Creditors only have grounds to ask for this kind of relief in certain circumstances. Don’t be concerned that all or most of your creditors will try to take this protection away from you. Most bankruptcy cases are completed without any creditor filing a motion for “relief from stay.” In most cases all or most of your creditors must abide by the automatic stay protections throughout the case.
Secured Creditors with Grounds for Relief from Stay
Most creditors which file motions for relief from stay are doing so to get permission to repossess collateral. Or they are trying to put conditions on the automatic stay to induce you to keep making your stream of payments on the collateral-secured debt.
- You file a Chapter 7 “straight bankruptcy” case when you are 2 payments behind on a vehicle loan. You indicate on your Statement of Intentions that you want to keep the vehicle. The lender files a motion for relief from the automatic stay for two purposes: to push you to catch up on those late payments more quickly, and to get court permission to repossess the vehicle if you don’t make those payments or fall further behind.
- You file a Chapter 13 “adjustment of debts” to stop your home from being foreclosed. You’re 15 months behind on payments of $1,200, a total of $18,000. Your Chapter 13 payment plan gives you 5 years to pay that arrearage. The bankruptcy court approves this plan, but then ten months later you miss a plan payment and a mortgage payment. The mortgage holder files a motion for relief from stay to get permission to resume the foreclosure. You can surrender the home at that point if you’ve decided you don’t want it. Or if you still want to keep the home, most of the time you are given another chance. However, the continuation of the automatic stay is conditioned on you meeting certain terms. Those terms are usually put into a court order, conditioning your protection for the home. At that point you can automatically lose the automatic stay as to the home if you don’t comply with the new terms.