Motions for Relief from Stay
You normally begin to pay the mortgage payments again the month you file your bankruptcy. If you were in forclosure, it will take a couple of weeks after you file for a lender to accept mortgage payments. The same is true for a car loan. Eventually, there will be a place to send your payments, and that will normally be within 30 days after filing your case. If you wait too long to resume payments, you will be in default. The lender can and will file a motion for relief from stay at the start of the case.
Most Chapter 13 cases require you to repay ongoing mortgage payments directly. The arrearage will be repaid from your payments into the plan. This is the rule in Kentucky, but some states like Indiana will have local rules that in a defaulted mortgage, you make both the mortgage payment and arrearage payment through the plan. These are conduit payments because all of the mortgage payments go through the trustee. The stay is the temporary order that protects the debtor during bankruptcy. If it terminates, the creditor can go back to foreclosing.
When you do not make the mortgage payment on time after you file the Chapter 13 bankruptcy, the lender will file a motion for relief from stay so they can return to state court and foreclose. About 80% of Chapter 13 cases fail or convert because people continue to default. If Chapter 13 was filed to keep an auto and you did not make payments the car loan company will also file a motion for relief from stay so they can repossess the car.
Why Motions for relief from stay are a problem.
The reason why a Motion for relief from stay is such a danger for debtors is because of the expense. If you are behind three months and your mortgage payment is 2000 per month, you will have to repay the court costs of about 350 dollars the mortgage company had to pay to file this motion. Plus, their attorney fees are about 350 to 450 per hour, which can be from 1000 to 2000 dollars. Plus, you must catch up on the 6000 dollars you are behind in post-petition mortgage payments.
The mortgage company often agrees to a probationary order allowing you to catch up over 180 days (6 months). If you default again, the home will automatically go back to foreclosure in state court after the lender notifies the court. If the lender files a second motion for relief from stay you can defend that motion. But you have defaulted on the first agreed order. Repeatedly paying attorney fees is expensive for a few missed payments.
How motions for relief from stay damage debtors
The cost, however, is minor compared to the damage a debtor does to their case. Bankruptcy is like a chess game, and what comes three or four moves later is often the real problem. Not making the mortgage payments on time sets up the debtor. It makes it much more likely that the lender will be allowed to foreclose later. This probationary order always has terms in it that allow the lender to foreclose without filing a second motion for relief from stay later in the case.
The lender is merely sitting back. As soon as the debtor falls behind a second time, the creditor files a notice with the court. If the debtor falls behind again a second time the home immediately goes back to foreclosure court. There is no hearing that is set up to allow the debtor to tell their side of the matter. There is just a notice of default, which is filed with the court, and the lender starts foreclosing. The debtor may ask for a hearing, but often, a debtor is not given a second or third chance.
Worse, you cannot dismiss your case and refile a second Chapter 13 bankruptcy case to stop the foreclosure. Instead, you must dismiss your bankruptcy case and wait 180 days after dismissal to file a second Chapter 13. If you don’t delay the foreclosure in state court long enough the home is sold. Repeat Chapter 13 filers pay a penalty or are banned from filing later under 11 USC 109 (g) of the bankruptcy code.
How Motions for relief make it more likely to lose a home
Long ago, people would file a Chapter 13 case to get the stay order, stopping a foreclosure sale. They would promise in a plan to catch up on the mortgage but then not make plan or mortgage payments and file a second or third case chain, filing multiple cases and stalling the foreclosure for years.
This loophole that was used by repeat filers was abused. A new bankruptcy rule 109 (g) required debtors to wait 180 days to refile after a case was dismissed if a motion for relief from stay was filed. This rule only applies if both a
- motion for relief is filed and
- the debtor dismisses the case.
It does not apply if the trustee dismisses the case for non-payment. Plus, after that, the debtor had to show a good reason within 30 days of filing the second case and explain how things have changed, and he should be given a second chance, or the stay automatically terminates.
If there are two of failed Chapter 13 cases within the prior year, then there is no stay. If the court dismissed the case for willful failure of the debtor to abide by orders of the court or to appear before the court in proper prosecution of the case, it has the same effect as a motion for relief from stay. You will still need to wait 180 days.
How to fight the motion for relief from stay.
If there is a motion for relief from stay, the debtor should always file an objection. Almost every lender will agree to a probationary order allowing you to catch up, but you need to be aware that a judge will only allow one or two mistakes. Generally, debtors are not given a third chance to make their Chapter 13 work.
If you have gotten a probationary order and the lender files a notice of default, you should request a hearing. In our district, the Western District of Kentucky, you are not automatically given a hearing over not making your mortgage payments over time after this probationary order. You must ask for a hearing and often explain a reason why you should be allowed to catch it up a second time and maintain the stay.
Often, the lender has caused their own problem.
Why multiple motions for relief from stay are a problem.
Your Chapter 13 plan protects you from creditors for the five years you are in your Chapter 13. Once the judge signs the confirmation order it is difficult but not impossible to modify it later. If your plan doesn’t pay enough to catch up with the mortgage, it is possible to increase the plan payments and modify the plan later.
If you see that you have fallen behind and you want to catch up, you can act before the lender files the motion for relief from stay. You can avoid the cost by amending your plan and increasing the plan payment to catch up a post-petition default. It is extra work for your attorney, but it is better than giving away 2000 dollars to the mortgage company’s attorney. Often, the lender will allow you to amend the plan to include and pay a post-petition default. If you are proactive, you can avoid problems. If you wait until they file the motion for relief from stay, you often cannot exercise this option.
The more often the lender has been forced to file motions, the less likely the judge, lender, and trustee are willing to help with your problems. Eventually, a judge will not believe any promise or excuse you have for the missed payments, and he will allow the lender to foreclose.
Modifying the plan early to cure small errors means the judge and trustee never see a motion for relief from stay. However, less than 1% of debtors bring problems to their attorney’s attention before a motion for relief is filed. If you know you are going to be off work due to surgery, ask your attorney to modify the plan to allow you 90 days or so off from payments and have an increase in the plan payments later.
Motions for relief from stay and a Trustee motion to dismiss
A motion for relief from stay, both costs to catch up and sets up a debtor to lose his home. The trustee’s motion to dismiss is similar in that the trustee most often files this motion to make the debtor catch up on his plan payments or dismiss the case.
There are two reasons why you are better off with a Trustee motion to dismiss. First, there are no attorney fees or court costs to catch up on payments with the Trustee. Second, the trustee makes his income from Chapter 13 by keeping 4.5% of your payments as his fee. The Trustee loses that stream of income if the case is dismissed. Normally, the Chapter 13 Trustee wants to keep you in a successful Chapter 13 repayment plan. The mortgage company wants to foreclose to lower their percentage of defaulted loans.
However, if you do not make the payments, a Chapter 13 trustee will dismiss your case. You are costing him time and trouble, which he and the judge will not tolerate someone who will not or cannot follow the rules or their own plan. Eventually, he and the judge will work to remove the debtor who will not or cannot pay from the docket. Most judges will tolerate a debtor who falls down the first or second time. The judge and trustee will rarely give a debtor a third chance.
The final options for a Motion to Dismiss
Think of your Chapter 13 plan as a contract in which you promise to make payments on time. It is often your last chance to keep the home. In our district, you promise to file an annual budget and turn over most of your tax refund every year if your plan repays less than 100%. Break the rules, and you break the contract, which often was your last chance to save your home. Chapter 13 cases are also often filed to keep an auto, deal with the IRS, or student loans over time. These rules apply to every Chapter 13 case.
If you cannot afford Chapter 13, you may be able to convert it to Chapter 7. You can also dismiss Chapter 13 so you can sell the home or find other solutions. If your attorney has not been helpful you may need to switch attorneys to someone who can repair these problems. But knowing the rules also helps to prevent these problems.