In Rem Relief From Automatic Stay Against Real Property—§ 362(d)(4) (In re Villegas)

By: Donald L Swanson

An obscure provision of the Bankruptcy Code is § 362(d)(4).

Under § 362(d)(4), when a debtor engages in “a scheme to delay, hinder, or defraud creditors” (through transfers of real property without lienholder consents or through multiple bankruptcy filings), relief from the automatic stay is authorized.  

11 U.S.C. § 362(d)(4) has two parts: (i) grounds for relief from stay, and (ii) enforcing that relief.  Here are the statutory provisions.

Grounds for Relief

Relief from the automatic stay is authorized as follows:

“(4) with respect to a stay of an act against real property . . . , by a creditor whose claim is secured by an interest in such real property, if the court finds that the filing of the petition was part of a scheme to delay, hinder, or defraud creditors that involved either—

(A) transfer of all or part ownership of, or other interest in, such real property without the consent of the secured creditor or court approval; or

(B) multiple bankruptcy filings affecting such real property.”

Enforcing Relief

The statute provides for in rem enforcement of the relief from stay for 2 years, as follows:

“If recorded in compliance with applicable State laws governing notices of interests or liens in real property, an order entered under paragraph (4) shall be binding in any other case under this title purporting to affect such real property filed not later than 2 years after the date of the entry of such order by the court”; and

• “except that a debtor in a subsequent case under this title may move for relief from such order based upon changed circumstances or for good cause shown, after notice and a hearing.”

An Illustration

What follows is a summary of this opinion that illustrates how § 362(d)(4) is applied, based on multiple bankruptcy filings: In re Villegas, Case No. 25 B 10323, Northern Illinois Bankruptcy Court (Doc. 45; decided September 25, 2025).

In Villegas, Bank files a mortgage foreclosure proceeding on real property owned by Debtor and Spouse.  Bank obtains a judgment of foreclosure.  A foreclosure sale is set but Debtor’s bankruptcy filing cancels that scheduled sale.

Such cancellation is the fifth time Debtor and Spouse have stopped a foreclosure sale on the same property by filing bankruptcy. 

–History of Filings and Dismissals

Since the mortgage loan went into default, Debtor or Spouse have filed five Chapter 13 cases—four of which have been dismissed:

• the first was filed on April 3, 2022, by Debtor’s Spouse and dismissed on September 13, 2022, for failure to make plan payments;
• the next was filed two months later (on November 18, 2022) by Debtor’s Spouse and dismissed on February 12, 2024, for failure to make plan payments—but prior to dismissal, a Court-approved agreement with Bank bars any bankruptcy refiling by Debtor’s Spouse for two years;
• in violation of the agreed bar order, Debtor’s Spouse files another bankruptcy on May 12, 2024, which is dismissed on September 5, 2024, for unreasonable delay;
• on October 22, 2024, another case is filed by Debtor’s Spouse—six days prior to a scheduled foreclosure sale—and dismissed on January 23, 2025, for failure to make any payments (significantly, the agreed bar order remains in effect until February 2026); and
• on July 7, 2025, Debtor (not Debtor’s Spouse) files the current Chapter 13 bankruptcy.

–Motion for In Rem Relief & Evidence

In the current case, Bank moves for in rem relief from the automatic stay under § 362(d)(4), which provision was added to the Bankruptcy Code by Congress in 2005. 

Debtor objects because:

• Debtor and Spouse are separated;
• the only debt Debtor has is the mortgage on the real property;
• the real property is Debtor’s homestead;
• Debtor’s proposed plan provides for 100% payment to Bank; and
• Debtor has made three payments to Bank since filing this case.

Debtor offers an exhibit purporting to show that Debtor and Spouse have paid $305,000 to the Chapter 13 Standing Trustee in seven of the twelve bankruptcy cases they have filed since 1984—but Debtor fails to show how much of that money went to Bank.

Bank does not dispute receiving three payments from Debtor in the current case but counters that it has received no other payments in the past three and a half years.

–Legal Standards

A decision to modify the automatic stay is committed to the sound discretion of the bankruptcy court, and hearings to determine whether the stay should be lifted are meant to be summary in character.

In rem relief is appropriate where an ordinary order granting stay relief will be ineffective to protect a secured creditor’s rights.

Bank has the burden of proof to establish a right to in rem relief.  Once Bank makes out a prima facie case, the ultimate burden of persuasion shifts to the party opposing the relief— here Debtor.

Under § 362(d)(4), the court does not actually order in rem relief as to real property. Instead, if the Court finds the elements of § 362(d)(4) are met, the Court’s order must be recorded “in compliance with applicable State laws governing notices of interests or liens in real property,” and thereafter, by operation of § 362(d)(4), in rem relief is applicable to that real property.

Absent further order of the court, there is no automatic stay that applies to the property if a bankruptcy case is commenced within the two years following the recording of the order.

–Two Elements

For in rem stay relief to be granted under § 362(d)(4) in these circumstances, a secured creditor must satisfy two elements:

• proof that the debtor engaged in a scheme to delay, hinder, or defraud creditors; and
• proof that the scheme involved “multiple bankruptcy filings.”

§ 362(d)(4) does not require a finding of fraud; the court need only find that there was a scheme for hindrance or delay to the movant.

–“Scheme”

The Bankruptcy Code does not define the word “scheme,” but some courts have defined it as “an intentional artful plot or plan.”

Others have utilized the Seventh Circuit’s pattern jury instructions: “a plan or course of action formed with the intent to accomplish some purpose . . . that purpose must be to delay, hinder, or defraud creditors.”

Courts have relied on several factors in determining whether a debtor engaged in a “scheme” to hinder, delay, or defraud creditors:

• the presence of numerous bankruptcy filings by debtor, each of which case was procedurally dismissed shortly thereafter;
• indications that the multiple filings were timed to hinder or delay collection of the debt through foreclosure;
• lack of evidence to demonstrate changed circumstances between filings;
• continued inability to fund a plan;
• the debtor’s failure to make mortgage payments for a long period of time; 
• employment by co-debtors of “tag-team” serial filings; and
• “strategic” bankruptcy filings timed to coincide with events in a related foreclosure action strongly suggest a scheme to hinder or delay the secured creditor.

–§ 362(d)(4) Applied

Here, it is undisputed that Debtor and Spouse have filed numerous cases over the years. Thus, the only element the Court must determine is whether such filings constitute a “scheme” to delay, hinder, or defraud creditors.

The Court finds that, under either definition of the word “scheme,” Debtor filed the bankruptcy petition in this case as part of a scheme to delay or hinder the Bank:

• the scheme involved multiple filings by Debtor and Spouse;
• the timing of at least the past five of their cases clearly establishes that the petitions were intended to delay the foreclosure proceeding;
• Bank has had to cancel several foreclosure sales due to these bankruptcy filings;
• Debtor and Spouse initially defaulted on the terms of the note and mortgage on February 1, 2022—and since that default, Debtor and Spouse:
  • have filed five cases between them; and
  • have repeatedly defaulted and failed to make payments to Bank for a sustained period during those cases;
• Debtor only made three payments to Bank in the current case;
• no other payments have been made to Bank for over three years;
• since Bank made the $280,000 loan in 2005, the payoff amount twenty years later has grown to $483,621;
• Debtor’s reliance on her separation from Spouse does not alter the analysis or change the result of any of the factors identified above, indicating that debtor has participated in a scheme to hinder and delay Bank from foreclosing on its collateral; and
• Debtor has not provided any evidence that comes anywhere close to rebutting Bank’s prima facie case.

Thus, the Court finds that Debtor has hindered and delayed Bank by the multiple bankruptcy filings and grants Bank’s motion for in rem stay relief under § 362(d)(4) against Debtor’s real property.

Conclusion

Very interesting.

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