A consumer facing a insurmountable financial burden many times pursue either a Chapter 7 or a Chapter 13 bankruptcy. A Chapter 7 bankruptcy provides a consumer relief in the form of what is known as a discharge from a good portion of his or her debts.
On the other hand, relief in a Chapter 13 proceeding involves the development of a payment plan. Through a Chapter 13 plan, a consumer pays off his or her debts by making one monthly payment to the bankruptcy court trustee. The trustee in turn makes a distribution of the funds to individual creditors.
A person in need to bankruptcy protection and relief is best served by retaining services of a qualified, experienced bankruptcy attorney. With that said, even after retaining a bankruptcy attorney, you will face questions about what is going on during the court process itself. For example, you may have questions about issues surrounding the automatic stay order issued at the start of the bankruptcy proceedings.
The Function of an Automatic Stay in Bankruptcy
When a Chapter 7 or Chapter 13 bankruptcy petition is filed, the court automatically issues what is called an automatic stay order. At its essence, the automatic stay order prevents any creditors from taking any further action to collect on a debt without the express prior approval of the bankruptcy court judge.
For example, if a debtor’s home is in foreclosure, the automatic stay order prevents the mortgage lender from proceeding with that legal action without approval from the bankruptcy court judge. No creditor is immune from the automatic stay order. However, although the stay order is automatic upon filing a bankruptcy petition, it is not permanent (as will be discussed in a moment).
Evaluation of Assets and Debts: The Decision Making Process
When consulting with an attorney about a bankruptcy, and after filing a petition with the court, a key task of the debtor and his or her attorney is evaluating the assets and debts that are a part of the court proceedings. In other words, a determination needs to be made as to how a debtor wants to deal with a particular asset.
A home is a prime example of an asset that needs to be examined during bankruptcy proceedings. In some cases a debtor desires to maintain possession of a the residence during and after a bankruptcy proceeding. For example, in a Chapter 13 case in which a debtor wants to keep his or her home, mortgage payments will be included in the overall Chapter 13 plan.
On the other hand, a debtor may have title to a home that is underwater when it comes to the value of the property and the outstanding balance on the mortgage loan. In other words, the home is worth less than the amount due on the mortgage. In such a case, the debtor is likely to want to surrender the residence as part of the bankruptcy proceedings.
Motion for Relief From Stay
A creditor (usually a secured creditor like the holder of a home mortgage loan) can file a motion for relief from stay with the bankruptcy court. Through this motion, a creditor is asking for the court’s permission to “re-start” its efforts to collect on the debt. For example, a mortgage lender may file a motion for relief from stay to continue with foreclosure proceedings on a residence.
Court Procedures Regarding a Motion for Relief From Stay
Once a motion is filed, the debtor’s attorney can oppose the motion. Filing a response in opposition to the motion is not always recommended or necessary. For example, let’s say the debtor is underwater on the home mortgage loan and intends to surrender the property. They have nothing to gain by opposing the motion for relief from stay.
Ultimately, the court holds a hearing on the motion. If the debtor opposes the motion, the judge takes evidence and listens to arguments from:
- the creditor’s attorney,
- the debtor’s attorney and
- usually, the trustee appointed by the court to oversee the case.
If the debtor does not oppose the motion, neither the debtor nor his or her counsel needs to attend the hearing. In the end, the relief from the stay is consistent with the position a debtor who wants to surrender property is taking.
When Is Relief From an Automatic Stay Granted?
Your creditors can be divided into two camps. Those attempting to collect on secured loans and those attempting to collect on unsecured loans that are not backed by any form of collateral. Each will be interested in lifting the automatic stay under certain conditions.
Secured Creditors
For instance, those who have filed for a Chapter 7 can only really purge unsecured debt. Secured creditors like those who have provided you with your car loan or mortgage can sue to lift the automatic stay in order to take possession of the property. They generally do this when you don’t have enough equity in your property to cover the loan amount. If the creditor can show that the debtor has no means of bringing the deficiency current, then the creditor may be able to get the automatic stay lifted in order to pursue repossession. If the debtor has no intention of keeping the property, it may not even be worth the effort to fight the motion.
Unsecured Creditors
Unsecured creditors do not usually file motions to lift the automatic stay. It generally isn’t worth their effort. They must be able to show that their particular loan would not be discharged in the bankruptcy. In the case of a Chapter 7 bankruptcy, the entire bankruptcy takes only four months to process. So even when a particular credit line won’t be purged in Chapter 7, it makes more sense for them to wait. In Chapter 13, a creditor may be able to show that their particular loan will survive the bankruptcy. This doesn’t happen often, however. In that case, it may make sense for a creditor to file a motion to lift the automatic stay.
Tenant Evictions
There is one other case in which a creditor would be interested in filing a motion to lift an automatic stay. That is in the case of a landlord who has filed eviction proceedings against a tenant. Bankruptcy can stop an eviction as well. But most courts will grant a landlord’s petition to lift the automatic stay and proceed with the eviction. It becomes your burden to prove why the eviction should be halted.
Share Your Concerns With Legal Counsel
Questions or concerns about the bankruptcy process? To learn more about what is involved with a motion for relief from stay, consult with an attorney. An experienced bankruptcy lawyer can explain these different legal processes and court proceedings. Feel free to contact Allmand Law Firm, PLLC today. We would be more than happy to help answer your questions.