Bankruptcy and The Motion For Relief From Stay

By David Swedelson and Alyssa Klausner, Attorneys at SwedelsonGottlieb, Condo Lawyers and HOA Attorneys

When a delinquent owner files for bankruptcy relief by filing a petition under either Chapter 7 or Chapter 13 of the United States Bankruptcy Code, the Code provides that an automatic stay, subject to certain exceptions, is immediately put into place. An automatic stay is like a restraining order, and it happens as soon as the bankruptcy is filed. This “stay” applies to creditors, including the association to whom the owner owes money, and it means an association can no longer collect or even attempt to collect any money (or foreclose on the property) from the owner, at least without getting permission from the bankruptcy court. The stay is intended to protect the delinquent owners who file bankruptcy. All actions to collect the delinquent assessments must stop, including lawsuits, foreclosures, as well as the suspension of membership and/or common area privileges.

What Is A Motion For Relief From Automatic Stay?
A Motion for Relief from Automatic Stay is a motion filed by a creditor, the association in this case, requesting that the bankruptcy court end the stay as to the particular creditor. If the Motion is granted, the automatic stay is lifted so that the creditor association can resume its collection action that it was pursuing prior to the filing of the bankruptcy case, including the foreclosure of the property. The Motion for Relief from Automatic Stay can only be made by a secured creditor, which is another reason that associations should not delay in recording a lien.

If an association was in the process of foreclosure, the automatic stay stops that process. An order granting the association’s Motion for Relief from Automatic Stay allows an association to pick up where it left off.

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