What is an Adequate Protection Order?

11 Aug What is an Adequate Protection Order?

It is not uncommon for debtors in Chapter 13 to fall behind on their trustee, mortgage, or car payments due to circumstances outside of their control.  In such situations, secured lenders will move for relief of stay, which is a motion to allow them to proceed with their normal remedies outside the jurisdiction of the Bankruptcy Court.

In such situations, unless an opposition if filed, relief of stay will typically be granted as a matter of course. In the face of opposition, the Court must then decide the issues at a hearing.  An Adequate Protection Order can be used to eliminate such a hearing, but is discretionary upon the lender.

An Adequate Protection Order (“APO”) is essentially an Order which grants relief of stay to the lender, but only after certain contingencies take place. For the lender, it saves the additional costs of a hearing and also provides certain relief of stay should the debtor fail to cure the default within a reasonable amount of time.  For the debtor, the APO eliminates the uncertainty of the hearing, provides additional time to cure the default, and maintains the automatic stay.

The contingencies typically in an APO is that the debtor will get current on past payments and eliminate whatever other post-petition defaults within a reasonable amount of time.  The APO usually provides recitals admitting why the debtor is in default, when the debtor will be current with payments, fees and costs to be paid in connection thereto, and the procedure to submit a final order for relief of stay in the event the debtor does not comply.

Most APOs also provide additional notice procedures, such as 72 hours telephonic notice that unless the default is immediately cured within 72 hours, the Order will be submitted and relief of stay will be granted. It is very difficult to undue an APO at a later date if one can not comply with the 72 hour notice.  Instead, relief is typically granted as a matter of course and one is completely at the lender’s discretion once the 72 hours pass.

If your attorney suggests an APO, be sure you completely understand all the terms, dates, payments, contingencies, and time frames.  While an APO is a great way to resolve a post-petition default, unless one can realistically comply with the terms of the agreement, relief of stay will be granted.

Written by Michael G. Doan

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