As a creditor, you may be wondering: When is the right time to proceed with a motion for relief from stay? How will I know the right situation to send a reaffirmation agreement? These questions can leave you feeling like you’re at a standstill.
Weltman attorneys Garry Masterson
and Erin McCabe
recently participated in our Ask a Pro webinar, How to Manage Motions for Relief from Stay and Reaffirmation Agreements: A Guide for Creditors, with moderator and attorney Monette Cope
. In this interactive webinar, Garry and Erin presented the ins and outs of these complex filings with their expertise in bankruptcy recovery. Now, we’re ready to share our top five takeaways. For in-depth, detailed answers to these takeaways and more, we recommend viewing the full webinar.
1. Know your options for when a debtor is surrendering collateral.
What should you do when a debtor surrenders their collateral? The short answer is to file for a motion for relief from stay, but there are options based on what chapter is filed.
- Chapter 7: If the debtor is surrendering the vehicle, you can either file for relief immediately or wait until the case discharges. We advise our clients to consider: Do you have your vehicle? When is the case going to discharge? If it’s the very beginning of a chapter 7 filing, we recommend that you file for relief. You’ll be able to liquidate your collateral much sooner. If the debtor expresses their intent to surrender and you don’t have your vehicle, it is still at risk.
- Chapter 13: Generally, if your vehicle is listed as a surrender, you will have relief and co-debtor relief from stay once the plan confirms. That being said, don’t assume this. We would normally recommend filing for relief from stay as long as you can receive a default order or a hearing date before the chapter 13 confirmation.
2. An account becomes ripe for a motion for relief from stay due to default during an insurance cancellation or lack of payments.
If you receive notice of insurance cancellation or lack of payments, you’re best to act on it immediately. Your vehicle is out on the road with the risk of damage, being totaled, or even disappearing. With there being no insurance, you’re more at risk than ever. If you receive a notice that insurance has been canceled, you should immediately contact debtor’s counsel (or contact us at Weltman, and we can reach out for you) to ask for proof of insurance. If you’re not hearing anything back from the debtor’s counsel within a short timeframe, we strongly advise that you file a motion for relief from stay.
3. Motion for relief from stay stipulations can help creditors if future defaults should occur.
After a motion for relief from stay is filed in a chapter 13, a stipulation between the debtor and creditor can often provide resolution. In this case, provisions are put into place so that a creditor would not need to file another motion for relief from stay in the future, should the debtor default on the agreement. There would also be provisions for a timely cure of the default(s) that led the creditor to file for relief.
4. Know the deadlines for reaffirming a debt in chapter 7.
You have 60 days from the meeting of the creditors to file your reaffirmation agreement. The discharge date generally happens quickly after. The deadline to file for a reaffirming debt in a chapter 7 filing is the discharge date. Make a note of this, and the process will go as smoothly as possible.
5. A creditor can take action regarding an account where collateral is not reaffirmed.
Keep in mind that even though that debtor didn’t choose to reaffirm on your account, the automatic stay is still in place while the bankruptcy case is pending until the chapter 7 discharge order is entered. So what can you do? If instead of reaffirming they decide to surrender, you’ll often need to file a motion for relief from stay so that you can liquidate.
If they choose to maintain payments, you can still secure the vehicle or foreclose on your property once the case discharges. Additionally, if it’s early enough in the case and they say they’ll maintain payments but fall behind, you should file for relief from stay to cover your bases.
The key thing to remember is once that discharge order is entered (if it’s not reaffirmed), the debtor’s personal liability for that debt is discharged, meaning you cannot pursue the debtor personally for any balance on your account. However, you can still secure your collateral and then liquidate and apply those amounts to your account.
For more comprehensive information and insights about these filings, watch our latest Ask a Pro: How to Manage Motions for Relief from Stay and Reaffirmation Agreements - A Guide for Creditors webinar here. Our in-house attorneys address creditors’ burning questions and concerns. If you have further questions or want assistance, connect with Garry, Erin, and Monette today.
This blog is not a solicitation for business and it is not intended to constitute legal advice on specific matters, create an attorney-client relationship or be legally binding in any way.