Chapter 7 Bankruptcy, Why File A Motion For Relief From Stay?

22 Jun Chapter 7 Bankruptcy, Why File A Motion For Relief From Stay?

Upon filing bankruptcy, an automatic stay goes into effect. In a Chapter 7, the “Automatic Stay” (like a restraining order) prevents creditors from doing anything to collect a debt.

The Chapter 7 automatic stay is a limited stay that ends a few months after filing Chapter 7 bankruptcy anyway. Creditors might wait until the stay ends on it’s own before pursuit of remedies like foreclosure or repossession on loans that are in default.

However, if a creditor doesn’t want to wait to go after their collateral, they can file a Motion for Relief from Bankruptcy Stay, requesting that the automatic stay be lifted.

Since a Chapter 7 bankruptcy stay ends in a relatively short period of time, fighting to keep it in place isn’t always advised. Even if you win, it only keeps it in place temporarily, in the best of circumstances. If the motion is granted, the borrower is still protected under state laws and you can make sure the foreclosure won’t occur if you are able to cure any default.

Bankruptcy courts may grant a Motion for Relief from Bankruptcy Stay in a Chapter 7 if it was filed because a debtor is behind on the mortgage when filed, and there is no equity in the property for creditors.

However, a motion for relief may be denied if there is equity in the property that is not exempt. The bankruptcy Trustee may object to the motion, and the Court may deny the motion. Chapter 7 is proper to stop foreclosures and give a Chapter 7 Trustee time to sell property . The Trustee will get funds that will go to pay creditors. That situation applies if there is non-exempt equity in the property, but if there isn’t equity to get to pay creditors the court won’t keep the automatic stay.

Chapter 7 bankruptcy is not designed to stop foreclosures to give people time to catch up on their mortgages and keep their property. That is what Chapter 13 bankruptcy is for. Chapter 13 gives people three to five years to catch up the missed payments, and it can also discharge unsecured debts like medical bills and credit cards, freeing up income to pay the mortgage payments. Chapter 13 also is able to protect property that is not exempt and that will be sold in Chapter 7, so long as the debtor can make the Chapter 13 payments.

If you have filed a Chapter 7, since it doesn’t propose a cure of the mortgage, you don’t have much to defend against the creditor who files a motion for relief because it has a right to foreclose on a defaulted loan. Therefore catching up the mortgage may be the most important thing to do if you want to prevent foreclosure.

Of course, whether or not you should file a response in your particular case is something that you should speak to your attorney about since each case is different and reasons to respond vary.

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Concentrating in Consumer Bankruptcy Law since 1988; Wake Forest Law School JD 1987 Law Office of Susanne M. Robicsek since 1993, Law Clerk to Judge Rufus Reynolds, US Bankruptcy Judge for Middle District of NC; Burns Price & Arneke, PA, David Badger and Associates, PA.

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