Despite its negative points, bankruptcy has many benefits for consumers. One of bankruptcy's benefits is the automatic stay, which prevents creditors from collecting on debts during the bankruptcy. A creditor can, however, ask the court to grant the creditor relief from the automatic stay if the creditor has good cause. In a Chapter 13 case, the outcome of such a request will impact the case and your property.
The Automatic Stay
Section 362 of the Bankruptcy Code provides that a bankruptcy filing automatically stays all collection activity. Whether you file Chapter 7, Chapter 13, or any other type of bankruptcy, your creditors must immediately cease collections as soon as you file the case. Collection activity includes phone calls, letters, foreclosures and repossessions.
Relief From the Automatic Stay
A creditor can file a motion with the bankruptcy court asking the court for relief from the automatic stay. Usually only secured creditors file such motions. A secured creditor is a creditor that has a security interest in property, such as a mortgage lender or a car note lender. If you're behind on your car or house payment, a creditor who believes you will be unable to repay -- and who knows how value depreciates as time passes -- will file a motion for relief from stay.
Motion for Relief
If a creditor files a motion for relief from stay, you will have a certain amount of time to respond to the motion. Your bankruptcy district may have its own local rules with different time periods. If you don't respond, the court will grant the motion and the automatic stay will no longer apply with respect to the property on which the creditor has its lien. If you do respond, the court will set a hearing date and you'll have to prove that you can catch up on your payments and maintain payments going forward.
Effect on Chapter 13
If you're paying your house or car payment through a Chapter 13 plan, relief from the automatic stay can be harmful. If the court grants the creditor's motion and the automatic stay is lifted from your house or your car, the trustee will take the payment out of your case and stop making disbursements to the creditor from your plan payments. The creditor will be allowed to collect on the debt. If the debt is for a house, the creditor can foreclose, and if the debt is for a car, the creditor can repossess.