How to Fight a Motion for Relief From Automatic Stay

George Simons

April 06, 2021

What debt collectors don't want you to know.

Summary: Did you declare bankruptcy and now you find creditors filing for relief from your automatic stay? Worried that you've wrecked your credit and you'll still end up owing debt collectors? Find out how to fight a motion for relief from automatic stay.

If you are struggling with a mountain of debt and ultimately decide to file for bankruptcy, one of the benefits associated with a bankruptcy filing is the “automatic stay” that is issued by the bankruptcy court. An automatic stay means that you are protected from any further collection efforts by creditors and debt collection agencies. The stay will generally protect you for the duration of your Chapter 7 or Chapter 13 proceedings. The overarching objective of the automatic stay is to give an individual a break from the constant harassment that is routinely deployed by creditors and some breathing room to develop a plan to reorganize and improve your financial situation.

However, there are instances where a creditor will file a motion seeking permission from the court to take certain collection efforts against you, even while your bankruptcy proceedings are active.

It is important to note that the vast majority of creditors do not try to file a motion to lift the automatic stay. It is considered to be a fairly rare occurrence. Nevertheless, if the creditor in your bankruptcy case decides to file the motion for relief, you will receive formal notice and get the chance to argue against granting relief at a hearing. It is also worth highlighting the fact that the burden falls on the creditor to prove that the motion for relief should be granted by the bankruptcy court.

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Arguments Made to Justify the Lifting of an Automatic Stay

As mentioned, when a creditor wants to contest the automatic stay in a bankruptcy proceeding, they will file a motion for relief from the automatic stay with the court. Below are some of the most common arguments made by creditors to try and persuade a bankruptcy court to lift the automatic stay:

Motion for Relief From Automatic Stay Filed by Secured Creditors

If you are behind on your mortgage when filing for Chapter 7 bankruptcy, there is the possibility that your mortgage lender will file the motion for relief and request that the court lifts the stay so it can continue with foreclosure proceedings.

Motions for relief are most commonly filed by “secured” creditors (i.e. your mortgage lender or auto lender) particularly when there is not enough equity in the property to offset the outstanding balance on the loan.

Courts may consider granting the motion for relief if the secured creditor cannot bring your payments current by seizing the property that serves as collateral for the secured debt (e.g., your automobile or home). Conversely, a bankruptcy court will probably opt to deny the motion for relief if there is evidence that the equity in the property is sufficient to repay the loan and the lender is sufficiently protected from enduring a financial loss.

Motion for Relief From Automatic Stay Filed by Unsecured Creditors

Most unsecured creditors (e.g., credit card companies) do not file a motion for relief, but there are unique circumstances where they go ahead with the motion. Generally, a bankruptcy court would consider granting the motion for relief if the unsecured debt will not be discharged in a Chapter 7 bankruptcy proceeding. However, the vast majority of Chapter 7 bankruptcy cases are concluded within four months. As a result, unsecured creditors typically just wait until the bankruptcy proceeding is done to initiate collection efforts.

In a Chapter 13 bankruptcy case, you are obligated to repay most non-dischargeable debts in full throughout a three-year or five-year repayment plan.

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What to Do If You Are Served With a Motion for Relief From Automatic Stay

When a creditor files a motion for relief from automatic stay, you will receive a notice of the request and a specific hearing date where you can argue against the court granting the motion.

It is extremely important to respond to the notice within 14 days of being served with the motion. Why? Because if you fail to respond within the designated period, the court may go ahead and grant the motion to lift the stay by default. Do not let this happen.

Generally, there are two strategies for effectively fighting a motion for relief from automatic stay. The first strategy is to raise procedural objections (which contests the method used by the creditor to file the motion). The second strategy is to raise substantive objections (which contests the substance of the motion itself).

Examples of Procedural Objections

You may be able to raise a procedural objection if there is evidence that the creditor failed to properly follow the rules when filing the motion. For example, creditors are required to serve you with a formal notice of the motion. If the creditor failed to properly initiate service of process, you could contest the motion for relief on procedural grounds.

Another situation that could give rise to a procedural objection is related to the documents that must be served to you by the creditor. Specifically, you need to be served with documents containing the following information:

  • Detailed description of the property
  • Value of the property
  • Amount of the loan
  • Amount allegedly owed
  • The original and current monthly payments

If a creditor fails to include these evidentiary documents with the motion for relief, it could enable you to raise a procedural objection with the bankruptcy court.

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Examples of Substantive Objections

In addition to procedural objections, you could raise a substantive objection to fight the motion. Generally, a substantive objection is more difficult since it usually necessitates researching the Bankruptcy Code and highlighting a specific deficiency or issue.

An example of a substantive objection you could raise is when your mortgage lender filed the motion for relief to continue with foreclosure proceedings on your home. You could object to the motion by asserting that your reorganization plan was confirmed or is likely to be confirmed soon, and the payments owed on the mortgage for your home are provided for in the plan. You could also object if you applied for, or received, a loan modification agreement that lowered the monthly payments on your mortgage.

When you file for bankruptcy, the court will issue an automatic stay that halts most collection efforts during your bankruptcy. However, a creditor can file a motion for relief to have the stay lifted. If you have a creditor who decides to file this motion, do not throw your hands up in despair. There are ways to effectively fight the motion for relief from automatic stay.

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