Cite as: Keith M. Lundin, Lundin On Chapter 13, § 63.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
Stay relief practice in Chapter 13 cases is controlled by 11 U.S.C. § 362(d) through (g) and Bankruptcy Rule 4001. The procedure is motion practice. Although Bankruptcy Rule 9014 states that an answer to a motion is not automatically required, it is better practice and is often required by local rule or custom that the debtor respond in writing.1 The court must hold at least a preliminary hearing within 30 days of the filing of the request or the stay expires, and if the hearing is only a preliminary hearing, the final hearing must conclude within 30 days of the conclusion of the preliminary hearing.2 Whether the initial hearing is a preliminary hearing or a final hearing, the automatic stay with respect to actions against property expires 30 days after the motion for relief unless an order is entered continuing the stay in effect. Failure to make sure that order gets entered within 30 days of the motion for relief will automatically leave the debtor naked of the automatic stay without regard to whether an order granting relief from the stay is actually entered.3
In some jurisdictions, stay relief requests in Chapter 13 cases are handled routinely with requests for stay relief in cases under other chapters. In other jurisdictions, there is a special motion docket that deals only with stay relief requests in Chapter 13 cases. Typically, if there is a request for relief from the stay in a Chapter 13 case, there are other problems in the case as well—a failure to commence payments, a plan that is not ready for confirmation or to which objections to confirmation have been filed. Courts that schedule Chapter 13 requests for relief from the stay on motion dockets with other contested Chapter 13 matters achieve some efficiency in the handling of Chapter 13 cases. A creditor’s stay relief request in a Chapter 13 case often inspires the debtor to propose solutions to the broader problems in the case.
In some jurisdictions, stay relief litigation is conducted in whole or in part based on affidavits.4 In some courts, creditors can present the facts supporting a motion for relief from the stay by affidavit or declaration. When affidavits are permitted, care in preparation of the facts is important. One bankruptcy court sanctioned creditors for filing false affidavits in support of motions for relief from the stay in Chapter 13 cases.5
Stay relief litigation is fundamentally forum selection: will the creditor be permitted to seek relief in some other court or context notwithstanding the bankruptcy filing. However, it is common for a stay relief request to implicate substantive considerations that go beyond selection of a forum. When the creditor’s motion or the debtor’s response to a motion for relief from the stay raises other substantive matters, it may be necessary to file an adversary proceeding or otherwise engage in other litigation to preserve the other issues.
For example, in Montgomery v. Dennis Joslin Co., II, LLC (In re Montgomery),6 the successful bidder at a prepetition foreclosure sale filed a preconfirmation motion for relief from the stay. The debtor responded that she intended to challenge the foreclosure sale as a fraudulent conveyance in a not-yet-filed avoidance action. The Bankruptcy Appellate Panel for the Eighth Circuit held that the bankruptcy court “should not entertain and decide a respondent’s challenge to a movant’s underlying post-foreclosure position in the context of a motion for relief from the stay.”7 Instead, once the bankruptcy court determined that the foreclosing creditor had a “colorable claim” to the property, the bankruptcy court should grant relief from the stay.
Practice varies whether to name the Chapter 13 trustee as a respondent in stay relief motions in Chapter 13 cases. Because payments under Chapter 13 plans are made to the trustee, naming the trustee as a respondent in the request for stay relief involves the trustee at any hearing in which payment information may be relevant. Adequate protection, the value of collateral, necessity to an effective reorganization—common issues at preconfirmation stay relief hearings—are of interest to the standing trustee and may require evidence or participation from the trustee.8
The debtor’s best defense to a secured claim holder’s preconfirmation stay relief request is to confirm a plan that resolves the basis for stay relief. If confirmation is delayed, the next best outcome is to negotiate interim adequate protection of the creditor.9 The overwhelming majority of preconfirmation requests for stay relief are settled by such agreements, which often include the debtor’s commitment to propose a specific treatment of the creditor in the plan. Increasingly, agreed orders in settlement of stay relief motions include time limits for accomplishing confirmation and provisions for automatic relief from the stay upon the failure of stated conditions.10
The appeal of an order granting or denying relief from the stay can be complicated in Chapter 13 cases. Failure to appeal within 10 days of entry of an order granting or denying relief from the stay is fatal to the appeal.11 There are jurisdictional issues if the stay relief order is conditioned in any way that renders it less than “final.”12 Jurisdiction to review stay relief sometimes becomes entangled with the appeal of other orders granting or denying confirmation.13 The bankruptcy court has great discretion whether to grant a stay pending appeal of an order granting or denying stay relief.14 The failure to seek a stay pending appeal of a stay relief order can be fatal to the appeal.15 The party appealing can expect to be required to post a bond pending appeal.16
1 See In re Hart, 296 B.R. 749 (Bankr. S.D. Ohio 2003) (Under local bankruptcy rules, relief from the stay is automatic when debtors fail to respond within 20 days; that debtors filed an untimely response after the 20-day period but before entry of an order does not prevent relief from the stay.).
2 11 U.S.C. § 362(e), as amended by Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, § 101, 108 Stat. 4106 (1994). The conclusion of the final hearing can be postponed by consent or on a finding of compelling circumstances.
3 See, e.g., In re Duran, 291 B.R. 542, 544 (Bankr. D. Colo. 2003) (Because automatic stay expired under § 362(e) 30 days after motion for relief, debtor’s emergency motion for stay of the order granting relief from the stay provides no possible relief. “Subsection (e) of section 362 states that the section 362(a) stay automatically expires thirty days from filing of a section 362(d) stay relief application unless one of two prescribed events occurs . . . . [T]he stay, as to Olympus, expired and no longer existed after February 16, 2003 (thirty days after Olympus filed its application for stay relief). Staying the operation of the Court’s February 13, 2003 order [granting Olympus relief from the stay] does not change this.”).
4 See Fed. R. Bankr. P. 9017, which applies Rule 43 of the Federal Rules of Civil Procedure in cases under the Bankruptcy Code. Rule 43(e) of the Federal Rules of Civil Procedure provides:
Evidence on motions. When a motion is based on facts not appearing of record, the court may hear the matter on affidavits presented by the respective parties, but the court may direct that the matter be heard wholly or partly on oral testimony or deposition.
5 See In re Gorshtein, 285 B.R. 118, 121–26 (Bankr. S.D.N.Y. 2002) (“[I]n motions by secured creditors for relief from the automatic stay . . . the facts are customarily presented in the form of an affidavit, affirmation or other pleading signed by an attorney for the secured creditor. . . . The certification in each of these motions that the debtor had failed to make any post-petition payments for ‘X’ months prior to the date of certificate was just plain false. . . . [A]ll of the movants and their attorneys protested their good faith. . . . [I]n each case the movant had the institutional ‘knowledge’ embodied in documentary evidence in its own files that the debtors had paid or tendered payment of all of the mortgage payments which were certified as unpaid. Reasonable investigation of its own records could and did reveal or confirm to the movant that the payments in question had all been made or tendered. . . . The integrity of the judicial process is undermined when the court is asked to grant substantive relief based on a certification of purported fact which is contradicted by the movant’s own records. In such cases, sanctions are warranted.”).
6 262 B.R. 772 (B.A.P. 8th Cir. 2001).
7 262 B.R. at 776.
8 See, e.g., the duty of a trustee in § 1302(b)(2)(A) to appear and be heard at any hearing concerning the value of property subject to a lien, discussed in § 58.6 [ Appear and Be Heard with Respect to the Value of Collateral ] § 53.7 Appear and Be Heard with Respect to the Value of Collateral.
9 See §§ 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1 Adequate Protection of Lienholders before Confirmation, 67.2 [ Adequate Protection Rights ] § 57.2 Adequate Protection Rights and 67.6 [ Negotiating for a Secured Claim Holder ] § 57.9 Negotiating for a Secured Claim Holder.
10 See § 82.1 [ Prospective, In Rem and Automatic Relief from Stay ] § 64.3 Prospective, In Rem and Automatic Relief from Stay.
11 See Schmidt v. Griffin (In re Schmidt), 215 B.R. 208 (D. Kan. 1997) (Order granting relief from the stay “nunc pro tunc” to validate a foreclosure sale was a final order that had to be appealed within 10 days of entry; appeal a year later after resolution of other issues is too late.).
12 See, e.g., Farmers Home Admin. v. Buckner (In re Buckner), 66 F.3d 263, 266 (10th Cir. 1995) (District court order that included a remand of question of entitlement to relief from the stay is not a final order. The bankruptcy court held that the FmHA could not set off a debtor’s postpetition Conservation Reserve Program payments against a debtor’s prepetition FmHA loan because the obligations lacked mutuality. The district court reversed and remanded to determine whether the FmHA was entitled to relief from the stay to exercise its right of setoff. On further appeal, “[b]ecause the determination whether the FmHA is entitled to relief from stay under 11 U.S.C. 362(d) to exercise its right of setoff requires more than mere ministerial computations involving little judicial discretion, we conclude that the matters on remand constitute ‘significant further proceedings.’ Consequently, this appeal is jurisdictionally defective because the district court’s order reversing and remanding to the bankruptcy court does not constitute a final order under 28 U.S.C. 158(d).”). See also Coffin v. Malvern Fed. Sav. Bank (In re Coffin), 90 F.3d 851 (3d Cir. 1996) (Court of appeals lacks jurisdiction over appeal by debtor of denial of bank’s motion for relief from the stay. “Finding” by bankruptcy court that bank’s lien would survive discharge was an advisory opinion only, not necessary to the stay relief question, and not binding on the parties.); Linehan v. Citicorp Mortgage, Inc. (In re Linehan), No. 95-15603, 1996 WL 33715 (9th Cir. Jan. 25, 1996) (Table decision at 76 F.3d 387) (Court of appeals is without jurisdiction to hear appeal of interlocutory bankruptcy court order denying the debtors punitive damages under 11 U.S.C. § 362(h).).
13 See, e.g., In re Madill, 65 B.R. 729 (D. Mont. 1986) (Bankruptcy court lacked jurisdiction to grant relief from the stay after debtors appealed the denial of confirmation of their plan.). See § 225.1 [ Appeal of Grant or Denial of Confirmation ] § 117.4 Appeal of Grant or Denial of Confirmation.
14 See Turner v. Citizens Nat’l Bank (In re Turner), 207 B.R. 373 (B.A.P. 2d Cir. 1997) (Debtors not entitled to stay pending appeal of order granting relief from stay because simultaneously pending Chapter 13 and Chapter 7 cases are not permissible and thus debtors’ likelihood of success on appeal is slim. Also, proposed plan would sell the property that is the subject of the stay relief litigation, and thus debtors cannot prove irreparable injury.); Green Point Bank v. Treston, 188 B.R. 9 (S.D.N.Y. 1995) (Bankruptcy court properly denied stay pending appeal of an order granting relief from the stay in debtor’s fifth bankruptcy since 1991. Debtor has not demonstrated a likelihood of being able to complete a Chapter 13 plan, and history of filing bankruptcies on the eve of foreclosure sales proves lack of good faith.); Blackwell v. GMAC (In re Blackwell), 162 B.R. 117 (E.D. Pa. 1993) (Bankruptcy court did not abuse its discretion in denying stay pending appeal of order granting creditor’s motion for relief from the stay and dismissing Chapter 13 case. The debtor or the debtor’s spouse filed seven bankruptcies between July of 1989 and February of 1992, all of which were dismissed.).
15 See Lashley v. First Nat’l Bank (In re Lashley), 825 F.2d 362 (11th Cir. 1987) (Foreclosure sale renders moot any appeal of bankruptcy court order allowing relief from the stay where debtor does not obtain a stay pending appeal. Bankruptcy court is without authority to retroactively impose a stay to correct for debtor’s failure to obtain a stay pending appeal.); Fields v. Option One Mortgage Corp. (In re Fields), 266 B.R. 415 (B.A.P. 8th Cir. 2001) (Debtor’s failure to seek a stay pending appeal is fatal to review of order granting relief from the stay because a foreclosure sale rendered the appeal moot.); Foreman v. Martin (In re Foreman), 278 B.R. 92 (D. Md. 2002) (Chapter 13 debtor’s appeal of an order granting relief from the stay is moot because no stay was granted and the debtor was evicted before the appeal was heard by the district court.); Gdowik v. United States (In re Gdowik), 228 B.R. 481 (S.D. Fla. 1997) (Tax protestor’s appeal of order granting relief from the stay is moot because Chapter 13 case was dismissed and no stay of either order was obtained by the debtor.).
16 See Hope v. General Fin. Corp. (In re Kahihikolo), 807 F.2d 1540 (11th Cir. 1987) (Chapter 13 trustee’s failure to post bond or seek stay pending appeal renders moot the trustee’s attack on bankruptcy court order granting relief from the stay.); In re Ennis, 178 B.R. 187 (Bankr. W.D. Mo. 1995) (Court would stay order granting ex-spouse relief from the stay to foreclose lien on the debtor’s right to receive an inheritance only if the debtor files a supersedeas bond for 125% of the amount of the inheritance.).