One of the benefits of filing bankruptcy is something called the Automatic Stay. The Automatic Stay is what protects you from your creditors during the life of your bankruptcy. Think of it as an invisible and impenetrable blanket surrounding you that prevents your creditors from contacting you or collecting from you. Unfortunately, there are rare circumstances in which the Automatic Stay cannot protect you from certain creditors. Certain creditors, as I discuss below, can file a Motion for Relief from your Automatic Stay. If granted, an Order for Relief allows the creditor to contact and collect from you. In this blog, I will explain what types of creditors typically file Motions for Relief and what happens if an Order for Relief is granted.
More often than not, the earliest relief that comes with bankruptcy begins upon filing your case. That is because the moment a bankruptcy case is filed the Automatically Stay simultaneously comes into effect. The Automatic Stay prevents creditors from contacting or collecting from bankruptcy debtors. Imagine a world where creditors can’t call you, they can’t send you mail, and they can’t take you to court. That is what the world looks like with the Automatic Stay. Nice, isn’t it?
While the benefits of the Automatic Stay are immediate and survive the life of a bankruptcy, there are times where a creditor can avoid the Automatic Stay. In order to get around the Automatic Stay, a creditor must file a Motion for Relief with the Bankruptcy Court. The Motion for Relief is the creditor’s way of asking the Court for permission to contact and collect from a debtor during the life of a bankruptcy. In order to do so, the Court must hold a hearing on the Motion for Relief and the Court must grant an Order for Relief to the creditor.
What types of creditors typically file Motions for Relief?
• Secured Debts: Car Loans and Mortgages
The most frequent filers of Motions for Relief are secured creditors. A secured creditor is a creditor whose debt is perfected and attached to property that the debtor owns (i.e., car loans and home mortgages). More often than not, the secured creditor files for a Motion for Relief after the debtor has missed one or more payments on the secured debt. What the secured creditor is seeking is the Court’s permission to contact the debtor to either 1) collect payment, or 2) seize the secured property.
• Criminal Restitution/Child Support/Spousal Support
There are times when creditors file Motions for Relief for non-dischargeable debts like criminal restitution, child support, or spousal support. Such debts are not dischargeable in bankruptcy, meaning they must still be paid by the debtor. Why would such creditors file a Motion for Relief? Usually, it is because the funds have an immediate need or impact on the creditor. Take child support, for example: if child support is not being paid while a debtor is in bankruptcy, but the child or parent owed the child support needs the support in order to survive financially, they may file a Motion for Relief to collect payment of the child support during the bankruptcy. If granted an Order for Relief, the debtor must resume paying child support.
• Credit Card Companies:
While credit card companies very rarely file Motions for Relief, it does happen. A credit card company can seek an Order for Relief if it feels the debtor made fraudulent charges before filing bankruptcy. Some examples include: extravagant spending, gambling debts, or cash advances immediately prior to filing bankruptcy. If an Order for Relief is granted, the credit card company can resume contacting the debtor, collecting payment, or pursuing a judgment for the outstanding balance.
What happens if an Order for Relief is granted?
Once an Order for Relief is granted, it is like the Automatic Stay no longer exists for that specific creditor. Now the creditor can contact the debtor through mailings, phone calls, or collection agencies. They can also repossess any secured collateral (if a secured creditor) or start a lawsuit against the debtor for the money owed. If a creditor is granted an Order for Relief and pursues a judgment against a debtor, the debtor’s bankruptcy provides no defense to this judgment.
If an Order for Relief is granted in a bankruptcy, the debtor’s best options are to either 1) pay the debt to the creditor, or 2) surrender any secured property back to the creditor.
The Automatic Stay is a great protection provided by the Bankruptcy Court. It prevents creditors from contacting, collecting from, or suing debtors during the life of a bankruptcy. The exception to this rule is the Order for Relief. If a creditor wants to collect a debt or recover a secured asset from a debtor, they must seek an Order for Relief to do so. If you are concerned about your secured debt payments, child support payments, or credit card usage, give us a call and meet with us. We are able to schedule appointments in person, over the phone, via Skype or via Facetime. We can help guide you through your financial struggles and are honored to help you. We don’t judge you, we help you get your life back!
