The Bank may file a Motion for Relief from the Automatic Stay. As a general rule, secured creditors should promptly make a motion for relief from the automatic stay and for adequate protection. Creditors may obtain relief from the automatic stay upon a showing of “cause” or that the debtor has no equity in the property. Special rules apply to single asset real estate cases (see below).
“Cause” exists whenever there is a lack of adequate protection for the property interest of the creditor seeking relief. There are basically three methods by which a creditor may be adequately protected. First, the court can order the debtor to make periodic cash payments to the creditor to compensate for any decrease in value of the property due to the stay. If the Bank is secured by a trust deed on real property and the payments are in default, the court may condition continuance of the stay on the debtor making regular monthly payments to the creditor. Second, the debtor may compensate for any loss in value caused by the stay by giving the Bank an additional or replacement lien on other additional collateral in which the estate has some equity. Third, the debtor can give the Bank protection by any other means, so long as the creditor obtains the indubitable equivalent of its position. An under secured creditor is not entitled to interest on its collateral while the stay is in effect (presumably, such a creditor would have to establish that its collateral was actually depreciating to obtain an adequate protection order requiring the debtor to make periodic payments or to grant the creditor additional or replacement liens).
A substantial equity cushion in collateral may provide adequate protection. An “equity cushion” exists where the property’s value exceeds the amount of the creditor’s secured claim and any senior secured claims.
“Cause” may also exist, for example, where the Bankruptcy petition is filed in bad faith—e.g., there is fraud, or the petition was filed solely as a delaying tactic.
The creditor may get relief from the automatic stay if the debtor has no equity in the property. In Chapter 11, 12 and 13 cases, it must also appear that such property is not necessary for an effective reorganization.