Defenses to a Motion for Relief from the Chapter 11 Automatic Stay

In a Chapter 11, the automatic stay is a critical protection that halts all collection activities by creditors against the debtor, such as foreclosures, repossessions or lawsuits. It takes effect immediately upon the filing of the bankruptcy petition and remains in force until the case is closed or dismissed or until a discharge is granted or denied. 

Creditors, however, may seek relief from this stay as if they believe it unjustly prevents them from protecting or enforcing their rights against the debtor’s property. Under U.S. Bankruptcy Code 11 U.S.C. § 362(d), a creditor must assert grounds, such as inadequate protection of their interest in property, the debtor lacking equity in the property or the property being unnecessary for reorganization.

Debtors facing a motion for relief from the automatic stay have several defenses at their disposal:

• Insufficient grounds for relief — The debtor can argue that the creditor has not met its required burden of proof. For instance, the creditor may not have shown that the property in question is unnecessary for the reorganization or that the debtor’s equity is insufficient.
• Failure to comply with the rules for seeking relief — The debtor may contest the motion on procedural grounds, such as the creditor failing to file the motion correctly or not providing sufficient evidence to support their claims.
• Inadequate notice to the debtor and other interested parties — The debtor can argue that it was not properly notified about the motion, which is a violation of the right to due process and compromises the ability of debtor to prepare a defense.
• Lack of standing to file a motion for relief — The debtor might assert that the creditor has no real stake in the outcome of the case. This absence of standing could be because the creditor cannot prove their debt is valid or secured.
• Showing the stay is necessary to enable the debtor’s reorganization — The debtor can argue that granting relief from the stay would significantly disrupt the Chapter 11 plan, and that this negative impact outweighs any benefit that the creditor might receive.
• The underlying debt is invalid — The debtor may be able to show that the underlying debt is not enforceable, due to such issues as fraud or a lack of contractual basis.

Successfully defending against a motion for relief from the automatic stay requires a thorough and strategic approach. An experienced Chapter 11 attorney can orchestrate a coordinated defense that is best calculated to promote the debtor’s reorganization efforts. Reliable legal guidance can be invaluable in ensuring that the debtor’s rights and interests are adequately protected.

Michael Jay Berger in Beverly Hills has successfully handled hundreds of relief from stay motions, representing both debtors and creditors. If you have any questions about bringing or opposing relief from stay motions, contact us online or call 310-271-6223 to schedule a free initial consultation.