You normally restart paying secured loan and mortgage payments again the month you file your bankruptcy. If you were in foreclosure, it will take a couple of weeks after you file for a lender to start accepting mortgage payments. They use different accounting after you file. The same is true for a car loan. Eventually, there will be a place to send your payments, and that will normally be within 15-30 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 if you don’t make the payments. To file this motion the creditors only need to prove they have a valid security interest and the Debtor is not paying on time or is not protecting the property. Not protecting the secured creditors can include not keeping insurance. The court grants these motions, allowing creditors to resume collection actions including repossession or foreclosure.
Where do you make these mortgage or car payments to
Most Chapter 13 cases require you to repay ongoing mortgage payments directly. The arrearage (default) will be paid from your payments into the plan (these are the payments to the Chapter 13 Trustee). 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 to the trustee.
These are conduit payments because all the mortgage payments go through the Trustee. The stay is the temporary order that protects the debtor during bankruptcy. If it terminates, the creditor goes back to garnishing, repossessing, foreclosing, and filing judicial liens against your property to collect.
The bankruptcy court automatic stay is all that protects you during the bankruptcy in managing creditors and ensuring compliance with your protective order.
When you do not make car loans or mortgage payments 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 20-30% of Chapter 13 cases fail or convert because people continue to default after the case was filed. If Chapter 13 was filed to keep an auto and you did not make payments the car loan company will file a to seek relief from stay so they can repossess the car.
Understanding the Automatic Stay
The automatic stay is a fundamental concept in bankruptcy law that provides temporary protection to debtors from creditor harassment and collection activities. When a debtor files a bankruptcy petition, the automatic stay is triggered, and it remains in effect until a bankruptcy judge issues a court order to lift it. The automatic stay prohibits creditors from taking any action to collect debts, including foreclosure proceedings, wage garnishments, and repossession of the debtor’s property. This stay is replaced by the discharge order at the end of the case. Follow the rules and the honest deserving debtor will get the permanent discharge.
The automatic stay is designed to give debtors breathing space to reorganize their finances and come up with a plan to pay off their debts. It prevents creditors from taking advantage of debtors who are struggling financially. The automatic stay is a powerful tool that can help debtors regain control of their financial lives and make a fresh start.
Grounds for Filing a Motion for Relief
A creditor may file a motion for relief from the automatic stay if they believe that the stay is causing them undue hardship or if they have a valid reason for lifting the stay. Some common grounds for filing a motion for relief include:
- The debtor has no equity in the property, and the creditor’s interest is not adequately protected. Often it may be used up faster than it is being paid for.
- The debtor is not making payments on a secured loan, and the creditor needs to repossess the collateral.
- The debtor has failed to maintain insurance on the property, and the creditor needs to take action to protect their interest in the property.
- The creditor has a valid security interest in the property, and the debtor is not paying Chapter 13 plan payments to catch up the arrearage.
A creditor must demonstrate that they have a valid reason for lifting the stay and that the debtor’s interests will not be unreasonably harmed by the lifting of the stay. The creditor must also provide evidence to support their claim and show that they have taken all the necessary steps to protect their interest.
Why Motions for relief from stay are a problem.
The expense of the motion for relief from stay
One 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 300 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 for this motion. Plus, you must catch up on the 6000 dollars you are behind in post-petition mortgage payments. You pay for the hours he has to work to remove the protections that are keeping your home and car safe. You have to pay the missed payments, attorney fee, and the filing fee. A probation order will often give you about 6 months to make this up. If you didn’t make the first two payments on a 2000 a month mortgage this will be about 6,300 dollars (4,000 in mortgage payments, 2,000 in attorney fees and about 300 for motion filing fee. I suggest you don’t miss your payments to the mortgage, car or trustee.
How a motion for relief from stay prevents you from refiling Chapter 13
This motion can also mean you have lost the home by preventing you from filing another Chapter 13. 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 automatically goes back to foreclosure in state court after the lender notifies the court. There is no hearing unless you request one and if you do request a hearing the judge will probably not reinstate the stay. The probationary order often includes this automatic clause which does not require the lender to file a second motion if you do this again. Filing a Chapter 13 is your promise to make the payments on time to any secured creditor. The judge will listen to an excuse once but rarely twice and almost never a third time. Each time he loses trust and respect.
How motions for relief from stay damage debtors
The cost to catch up 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 obtain relief from the stay or foreclose later. The probationary order almost 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. The home immediately goes back to foreclosure court. There is no hearing to allow the debtor to tell their side of the matter unless the debtor requests it. There is just a notice of default, which is filed with the court, and the lender starts foreclosing back in state court. The debtor may ask for a hearing, but often, a debtor is not given a second or third chance. Unsecured creditors, such as landlords seeking to evict tenants for unpaid rent, can also request relief from an automatic stay during bankruptcy proceedings.
The Rule 109 (g)(2) prohibition against filing later
Worse, if two cases were filed within the last year. you cannot just dismiss your case and refile another Chapter 13 bankruptcy case to stop the foreclosure. Instead, you must dismiss your bankruptcy case and wait 180 days after dismissal to file a subsequent 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)(2) of the bankruptcy code which prevents you from refiling in bad faith.
How Rule 109 (g)(2) stopped repeat filing
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 3,4,5,6,7 times. They would file multiple cases and stall the foreclosure for years with no intent to pay.
This loophole was used by repeat filers and was abused. A new bankruptcy rule 109 (g)(2) required debtors to wait 180 days to refile after a case was dismissed at the debtor’s request if a motion for relief from stay was filed. It does not require that the motion was granted. Merely filing the motion can prevent you from filing a subsequent case and getting a stay. 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 or many other reasons. To get the automatic stay in a second case, the debtor had to show a good reason within 30 days of filing. how things have changed, and he should be given a second chance. Without this motion to extend the stay the stay automatically terminates.
If there are two failed Chapter 13 cases within the prior year, then there is no stay in a second case. 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 debtor dismissing his case. 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 comply with the Chapter 13 plan they proposed.
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. 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.
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 modify the plan and increase the plan payments.
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 with a post-petition default. It is extra work for your attorney, but it is better than giving away 1000 to 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.
Multiple motions also create problems with the court
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. To the Judge and Trustee it looks like you only care when the house is up for sale and you will never make timely payments. The court wont lose their compassion and empathy the first time. They will lost all compassion or empathy the second or third. 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 in Bankruptcy Court
A motion for relief from stay, both costs you money to catch up and sets up a debtor to lose his home later. The Trustee’s motion to dismiss is similar in that the Trustee files his motion to dismiss to make the debtor catch up on 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 the percentage of their 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. The Trustee 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 maybe a 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. This 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. There is also a hardship discharge available if you have made most of the payments in Chapter 13 and the problem wasn’t a problem you created. In a California case, a woman complained that her loss of income from her husband’s death should allow her a hardship discharge. However, the loss was because she murdered her husband and was in prison. She didn’t get that hardship discharge since she caused her own problem.
You can also dismiss a 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 helps to prevent these problems.
