The Motion for Relief from Stay Versus The Automatic Stay

When a creditor files a motion for relief from the automatic stay, the protection of the automatic stay is put to the test. While the automatic stay is designed to stop collections and provide breathing room, it is not a permanent solution.

By Alexander Hernandez, J.D., Professor, and Author of Consumer Bankruptcy Law (Routledge).

Key Takeaways: Understanding the Motion for Relief from Stay

The Automatic Stay is Temporary: While 11 U.S.C. § 362 provides immediate protection, it is NOT a permanent cancellation of a creditor’s rights.

• The “Adequate Protection” Requirement: Creditors are entitled to have the value of their collateral protected. If the property is depreciating, such as a vehicle) or is at risk, such as not having insurance, the court may lift the stay to prevent creditor loss.
• The Two-Pronged Equity Test: Under § 362(d)(2), the stay can be lifted if the debtor has no equity in the property and it is not essential for a successful reorganization.
• The Timeline: Once a Motion for Relief is filed, the “30-day clock” starts. Debtors must act quickly by filing an objection, or the stay may terminate automatically by operation of law.

Understanding the Automatic Stay and the Motion for Relief

When a debtor files for bankruptcy, the Automatic Stay provides protection under 11 U.S.C. § 362. It “automatically” stops foreclosures, repossessions, and collection lawsuits and calls.

Note, this is different from when a bankruptcy lawyer is retained. Hiring a bankruptcy lawyer will require creditors to contact your lawyer directly, so the creditor calls stop, but that doesn’t stop lawsuits! Filing the bankruptcy petition initiates the automatic stay.

Professor’s Note: Even though the automatic stay begins with the filing of the bankruptcy petition, it is recommended that a Suggestion of Bankruptcy be filed in the state court action.

What is Relief from Stay?

Creditors have a specific legal tool to remove the protections from the automatic stay: the Motion for Relief from Stay. Think of the Automatic Stay as a “pause button” on litigation and collection. A Motion for Relief is a creditor’s formal request to the Court to hit “play” again. Basically, asking the bankruptcy judge to keep their case moving forward.

If the judge grants the motion, the creditor can proceed with state law remedies, like selling a house at a foreclosure auction or repossessing a vehicle, as if the bankruptcy hadn’t been filed.

Why Do Courts Grant Relief?

The Bankruptcy Code provides several grounds for lifting the stay, but most disputes fall under two categories found in Section 362(d):

For “Cause” (Including Lack of Adequate Protection)

The most common “cause” is that the creditor’s interest in the property is losing value and they aren’t being compensated for that loss.

For example, you are keeping a car in a Chapter 13 plan, but you stop making the monthly “adequate protection” payments or let the insurance lapse. The creditor argues their collateral is at risk, justifying relief.

No Equity + Not Necessary for Reorganization

The court may lift the stay regarding a specific piece of property if:

• The debtor has no equity in the property (they owe more than it’s worth); AND
• The property is not necessary for an “effective reorganization.”

In a Chapter 7 “surrender” case, this is often a formality. In a Chapter 11 or 13, creditors will likely argue that the debtor cannot actually prove that the property is necessary to their plan’s success and that they can afford the payment plan.

The Procedural “Fast Track” of the Motion for Relief of Stay

One thing that catches many by surprise is the timeline. Under §362(e), the stay can terminate automatically 30 days after a motion is filed unless the court orders otherwise or holds a preliminary hearing.

Some states, like Florida, in response to the mortgage foreclosure crisis, speed up the process when Chapter 7 bankruptcy is filed and the debtor is behind on the mortgage payments, or has clearly stated they will be surrendering the home in the bankruptcy petition.

The “Comfort Order”

Sometimes, a creditor will ask for a “comfort order” from the Federal Bankruptcy Judge confirming they are clear to proceed, even if the stay has technically expired by operation of law.

Note: §§362(c)(3) and (c)(4) apply to individual debtors who had one or more pending bankruptcy cases in the preceding year. Those debtors are required to file a motion to extend or to impose the automatic stay within 30 days from the date of the petition.

Professor’s Note: While §362(d) provides the statutory basis, don’t overlook local rules. Many jurisdictions have “stay loss” provisions in Chapter 13 confirmation orders that can bypass the need for a full evidentiary hearing if certain conditions are met, such as post-petition mortgage payments being missed.

The Professor’s Conclusion

The Automatic Stay is a powerful tool, but it is not a permanent solution to a secured debt problem. If a debtor cannot provide “adequate protection” to the creditor, the court will allow the creditor to move forward to protect their interests.

Most importantly, remember that if you are behind on secured debt payments such as a mortgage or car loan, Chapter 7 bankruptcy will not save your home from foreclosure or your car from repossession.

Finally, note that the income figures for the Means Test are updated regularly twice a year. For the latest figures for your state, please refer to this prior article.

Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. Paralegals and students who are buying single copies can do so via Amazon Books. To access my YouTube channel, click this link. You can also listen to my podcast on Spotify.

You can learn more about filing for bankruptcy and the bankruptcy petition via this link. Information on the bankruptcy court system, contact information for trustees, and your state’s exemptions can be found here. The federal bankruptcy exemptions are listed here. The latest version of the 341 Meeting of the Creditors can be found here.

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