Automatic Stay Relief

The automatic stay can be lifted…

Upon the filing of a bankruptcy case, an automatic stay goes into effect against the rights of creditors to collect their debt or realize on any security for such debt. Request for stay relief is not as prevalent in a Chapter 7 case as in a Chapter 13 case. In a Chapter 7 case, the debtor either surrenders the asset securing the debt, or reaffirms payment of the debt in order to retain such asset. Reaffirmation of debt is described later in this information.

In a Chapter 13 case, a debtor can include any arrearage on any debt existing prior to the filing of the bankruptcy case. Such arrearage is usually paid out over 60 months. However, a debtor must remain current on such debt after the filing of the bankruptcy case or be subject to a creditor obtaining relief from the automatic stay. The typical situation that causes a request for such stay relief concerns a debtor who becomes delinquent on the payments on his principal residence. Upon a default by a debtor concerning two or more consecutive delinquent monthly payments under the existing loan documents with the creditor, the creditor can file a motion with the bankruptcy court requesting that the stay be lifted to allow the creditor to enforce his foreclosure remedies in the subject property.

The typical resolution to the filing of such a motion is for the creditor and debtor to enter into an agreement filed with the bankruptcy court. Such an agreement requires that the debtor resume the monthly installment payments required by the loan documents and make up the default amount (including attorney fees incurred by the creditor) over a period of six months. This agreement also provides to the creditor remedies to terminate the stay upon further default by the debtor under the terms of the agreement. Such further default by the debtor could ultimately lead to the lifting of the stay and eventual foreclosure of the subject property by the creditor. It should be noted that bankruptcy courts insist on such agreements because the property in question is usually the debtor’s principal residence. Courts are reluctant to lift the stay in such situations without allowing a debtor the opportunity to cure the default.

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