During bankruptcy, the court issues an automatic stay to prevent creditors from foreclosing on or repossessing property. If creditors can establish that they have a right to the property in question, they can file a motion for relief from stay. If successful, this motion lets creditors continue to pursue foreclosure, repossession or other actions to collect on debts.

While this motion is vital to many creditors during bankruptcy, it can also lead to consequences if done incorrectly. For example, creditors can be fined or even lose their collateral if they cannot show that the motion for relief from stay was filed properly.

Creditors often bring motions for relief from stay regarding car loans, mortgage debt and failure to pay under a Chapter 13 bankruptcy plan. In order to obtain relief from the stay, a creditor must show that there is a reason for the Bankruptcy Court to grant the relief.

Creditors will often seek relief when:

  • Valuable property is uninsured or there is other risk that the creditor will lose its interest in the property
  • The property is subject to depreciation
  • The debtor is in arrears on his or her mortgage payment and there is evidence that the debtor will not be able to make payments on the property in the future

Debtors have the chance to file an objection to the motion for relief from the automatic stay. If they do so, both parties must attend a hearing regarding the motion. In some cases, and depending on the facts of each case, courts will release the stay. In others, courts will require the debtor to make payments to the creditor. However, if a court believes a creditor's interests are not jeopardized by the stay, it will not grant relief from the stay.

Source: U.S. Code, 11 USC Section 362(d).