Oppositing a Motion for Relief from Automatic Stay in Bankruptcy

Issues Regarding the Automatic Stay and Creditor Relief

When a debtor files for bankruptcy an automatic stay goes into effect barring any creditors from making attempts to collect on debt. The automatic stay helps debtors in bankruptcy to halt collection payments and gain more time. However, a creditor may file a motion for relief from this automatic stay to lift the halt on collections activities. A creditor may do so if the debtor is a SARE (Single Assets Real Estate) debtor, the property used as collateral for the debt is not needed for a reorganization, or the debtor has no equity in the property used as collateral for the debt.

Opposing the Motion for Relief

A debtor may oppose the motion for relief from automatic stay when the debtor needs the property for a plan of reorganization. When property is sold after an automatic stay lifts, the confirmation of the plan and bankruptcy estate may be affected. If relief of stay is not in the best interest of the estate, and provides the creditor with no extra opportunities for determination of damages, the court may deny the motion for relief. (See also How long does the motion for relief from automatic stay take).

Lost Rental Income May Impact the Bankruptcy Estate

The debtor may also oppose the motion by arguing the bankruptcy estate assets will be impacted by the rental income owed for commercial rents if the property is sold.  Issues relating to rent include preferential payments, the right to apply rents to a secured claim, claims for offset against the creditor, and the existence of executory provisions of a contract capable of rejection or reformation.  These issues may impact not just the debtor but creditors other than the moving party of the motion.

According to RFF Family Partner v. Wasserman, 2010 US District Lexis 57191 (2009), judicial efficiency may favor denial of the motion.  If the court granted the motion, these issues may need to go to a state court to resolve.  Moving a case to state court may not be efficient since the bankruptcy court would already be familiar with the issues, and might be in a better position to resolve them along with the rest of the bankruptcy case. 

Far Reaching Impact

The outcome of a motion for relief from automatic stay may affect not just the debtor and creditor, but other parties in the bankruptcy case.