In an ideal world, mail from creditors and debt collectors should stop after your chapter 7 bankruptcy is filed. Sometimes, creditors and debt collectors are slow to stop the collection letters but usually this can be dealt with in a simple phone call.
For secured creditors such as car lenders and mortgage lenders the communication is more intense and ongoing. These lenders want to know whether you intend to keep or surrender the car or home. Secondly, they want to make sure the property is in a safe situation including things such as ensuring the insurance is up to date.
If you are behind on your car or mortgage payments, your lender can ask the court for permission to repossess or foreclose on your home. The vehicle for doing this is known as a Motion for Relief form Stay. The title of the motion is derived from the fact that the creditor is asking the court to suspend the automatic stay imposed upon the filing of your case. The automatic stay prohibits all collection activity including letters, calls, repossessions and foreclosure sales. Therefore, your car lender and mortgage company need the court’s permission to engage in these activities.
Once a Motion for Relief from Stay is filed, you, as the debtor, have approximately 21 days to respond with reasons why the court should not grant the motion. You have the opportunity to tell the court why the automatic stay should remain in effect including potential defense such as lack of proper service, the fact that the entity filing the motion does not have the right to do so or your plan to cure the default within a reasonable amount of time.
In Connecticut, the Court will allow you up to six months to cure arrears in your car or home before granting the automatic stay. However, you have to secure this in writing with the creditor or go to court to obtain an order. Typically, creditors will give you the six months because they know the Court will give you at least that much time.
For some debtors the Motion for Relief from Stay will be granted and the creditor will have the right to pursue repossession or foreclosure. If this happens do not forget that you still have certain rights based on state law. After all, repossession and foreclosures are government by state law. Therefore, the fight is not over. For example, in Connecticut you are entitled to a mediation hearing as part of the foreclosure process. Mediation can be very effective in getting both sides to negotiate a reasonable repayment plan to allow you to stay in your home.
As always, this is a brief overview of a complex topic. Please consult an experienced bankruptcy lawyer or some of CT tax attorneys since they are more familiar with this topic.