A Chapter 13 and Motion for Relief of Stay
A Chapter 13 bankruptcy, often called the Wage Earner’s Plan, is a type of bankruptcy where the filing debtor makes a 3 or 5 year plan to pay back part or all of his or her unsecured debts.
During the plan, the filing debtor is required to stay current on any secured debt if the debtor wants to keep the creditors from either foreclosing or repossessing the secured asset. Unless the debtor intends on surrendering the secured property, the debtor must build any payments that are in the arrears into the plan.
Once a petitioner files for Chapter 13 bankruptcy protection, the automatic stay of bankruptcy automatically goes into effect. The stay order of the bankruptcy court legally and immediately prevents any collections activity from creditors including foreclosures and repossession.
The automatic stay of the bankruptcy court is in effect until the bankruptcy is closed or until a creditor can successfully petition the court in a motion of relief from the stay. If the Court grants a motion for relief, it enables the creditor to continue where it left off in its efforts to collect on the debt. That means the creditor of a secured debt may start the foreclosure or repossession process immediately upon granted relief of the stay.
A Couple of Reasons a Secured Creditor Wants Relief from the Stay
What are the reasons a secured creditor might want a relief of the automatic stay? There are basically a couple of reasons a creditor will petition the bankruptcy court for relief from the stay.
First of all, a creditor may file for a motion of relief from the automatic stay if the debtor gets behind on any post-petition payments relating to the secured debt. Sometimes, a filing debtor may intend on keeping the secured property at the time of filing but cannot afford to do so for some reason, and they end up defaulting on the loan. Therefore, a creditor will file a motion of relief in order to begin the process of recovery of their asset which is now in default, maybe for the second time.
Secondly but rarely, a creditor might file for a motion of relief from the automatic stay of Chapter 13 when the creditor suspects the debtor has defrauded them in some way. A person commits the crime of defrauding secured creditors if he destroys, removes, conceals, encumbers, transfers or otherwise deals with property subject to a security interest with purpose to defraud the holder of the security interest.
When a Chapter 13 begins, the plan is for certain time frame. Things can change during that time. An example of a debtor defrauding a secured creditor might be if a debtor decided to walk away from their home that is underwater and removed certain valuable assets that were attached to the home.
Motion of Relief a Complicated Process
A motion of relief can be a complicated process at times. A bankruptcy court will normally side with the filing creditor during the motion of relief because the burden of proof rests on the filing debtor. Very few motions of relief are challenged by the filing debtor.
Be sure to have a clear understanding with your bankruptcy lawyer about the motion of relief, and how any motion would be paid for if you needed to defend against one.
- Chapter 13 Dismissal and Why It Might Happen (betterbankruptcy.com)
- Chapter 13 and the Fees of Foreclosure (betterbankruptcy.com)
- A Chapter 13 Filed Pro Se Could End Up Being Dead on Arrival (betterbankruptcy.com)
- Taxes Due After a Discharged Bankruptcy (betterbankruptcy.com)