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When a debtor files for bankruptcy, an automatic stay is ordered to prevent creditors from collecting debt. Creditors can file a motion to lift the stay, but requirements vary by bankruptcy chapter and court. In Chapter 7, property value is important, while in Chapter 13, payment history is key. If the motion is accepted, the creditor can proceed with debt collection, often through real estate foreclosure.
When a debtor files for bankruptcy under the United States Bankruptcy Code, the bankruptcy court orders an automatic stay immediately after the bankruptcy petition is filed. An automatic stay is a court order that prevents any creditor from doing anything else to collect the debt. A motion for relief from automatic hold is a motion that can be filed by a creditor asking the court to lift the automatic hold and allow collection efforts to continue, including foreclosure.
The requirements for the presentation, and the successful outcome, of an application for exemption from automatic suspension vary according to the type, or chapter, of bankruptcy proposed by the debtor. It can also vary slightly by court, despite the fact that bankruptcy rules are federal in nature and should be applied uniformly across state bankruptcy courts. In all cases, basic information will be required, such as a copy of the trust deed or promissory note, mortgage paperwork, payment history, and any prior garnishment or repossession proceedings.
If debtors have filed for Chapter 7 bankruptcy, the court generally requires information on the current market value of the property. A Chapter 7 bankruptcy is also known as a liquidation bankruptcy because all non-exempt assets are liquidated to pay off the debtor’s creditors. If the debtor has more equity in the property than the Chapter 7 rules allow, then the court is more likely to grant the request for exemption from automatic suspension, since the property will still be liquidated. The lender must generally obtain a certified appraisal of the property for the court to assess the value.
A Chapter 13 bankruptcy, on the other hand, is known as a reorganization because it allows the debtor to pay off their debts over time without selling non-exempt property. As such, the court will be more concerned if the debtor has made payments as expected on the property after filing for bankruptcy. An affidavit that the debtor has not made payments since filing the petition is generally required to succeed on a motion for exemption from automatic stay in a Chapter 13 bankruptcy.
Once you file a request to suspend the automatic stay, the court will set a date to hear arguments on the motion. If the motion is accepted, the creditor can proceed with the collection of the debt. In most cases, this means real estate foreclosure.
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