Mortgage lender requested relief from the automatic stay?

Recently on our legal forum a user asked, “I have recently filed Chapter 7 bankruptcy. I thought filing bankruptcy prevented creditors from collection activity including pending foreclosures, evictions, wage garnishments, and law suits. Soon after the bankruptcy filing, however, I got a notice that my mortgage lender filed for a Motion for Relief from the stay. I am wondering what this means and whether I will lose my home?”

What is an automatic stay?

After filing for bankruptcy protection most debt collection efforts are stayed, which means debt collectors must stop all collection efforts. For most creditors, the automatic stay will remain in effect throughout the Chapter 7 bankruptcy proceeding until the case is closed, which could be 3 to 4 months. Some creditors, however, may have the legal right to file a motion with the bankruptcy court, referred to as a Motion for Relief from the automatic stay.

To file the Motion for Relief, the Movant (lender), must request relief. Within their motion they must outline the legal basis for their request and with whom the relief is against (the respondent). Additionally, the Movant must include information about why the stay should be approved. Common reasons listed can include:

  • The debtor has defaulted on the payments for the property.
  • The property which is used to collateralize a debt is valuable and at risk.
  • The lender has no reason to believe the debtor will surrender the property, reaffirm the debt, or redeem the property.

After the Motion for Relief is filed with the bankruptcy court, there is a notice of hearing. The Movant has the burden of proof to prove their case and prove why the stay should be lifted. If the bankruptcy court accepts the lender’s motion, however, the lender may continue their efforts to foreclose on the property.

While some motions can and should be opposed. In some cases, such as when a mortgage lender files a Motion for Relief, it might be clear that the homeowner intends to surrender the property in question because the homeowner realizes they are not able to bring the loan to date or make regular mortgage payments following the bankruptcy.  In this case, the bankruptcy filer generally does not need to oppose the motion or attend the motion hearing.

Can an unsecured creditor file a Motion for Relief?

Although unsecured creditors may be able to seek a Motion for Relief for the automatic stay, motions can only be requested if the unsecured debt they want excluded is not going to be discharged in the Chapter 7 bankruptcy.

For example, spousal support, criminal restitution and child support payments are not dischargeable in bankruptcy. For this reason, they are not be affected by an automatic stay, and creditors may continue to collect debts for these unsecured debt obligations even if the debtor has filed Chapter 7 bankruptcy.

Bottom Line:

Filing Chapter 7 bankruptcy will not protect you from the collection efforts of all lenders. If a creditor files and receives relief from the automatic stay, however, a debtor will not automatically lose their property. The creditor still has to follow the proper legal steps to foreclose or repossess the property.

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Beth L. is a content writer for Better Bankruptcy. Good content and information is one of many methods we utilize to bring you the answers you need.