Stay of acceleration: Overview, definition, and example
What is a stay of acceleration?
A stay of acceleration refers to a temporary suspension or postponement of the acceleration of a loan or debt repayment. Acceleration occurs when the lender demands the immediate repayment of the entire outstanding balance of a loan, typically due to a default by the borrower, such as missed payments. A stay of acceleration prevents or delays the lender from triggering this demand for full repayment. The stay is usually granted under specific circumstances, such as during legal proceedings, bankruptcy filings, or when a borrower enters into a new agreement with the lender to remedy the default. The stay of acceleration gives the borrower additional time to address the issue without the immediate pressure of paying off the entire debt.
For example, if a borrower defaults on a loan, the court may issue a stay of acceleration, allowing the borrower to make payments without triggering the full repayment of the loan.
Why is a stay of acceleration important?
A stay of acceleration is important because it provides temporary relief to borrowers who are facing financial difficulties or have defaulted on their loans. It offers time to either work out a repayment plan with the lender, resolve the financial issue, or pursue legal options such as bankruptcy protection. For lenders, a stay of acceleration may prevent an abrupt and potentially costly legal action by allowing both parties to negotiate a resolution. In cases where acceleration is triggered prematurely or inappropriately, a stay of acceleration ensures that borrowers are not unduly harmed and that the legal process follows due process.
Understanding stay of acceleration through an example
Let’s say a borrower takes out a mortgage and falls behind on payments. As a result, the lender issues a notice of acceleration, demanding the full repayment of the mortgage balance. The borrower files for bankruptcy, and the court grants a stay of acceleration. This means the lender cannot enforce the full repayment at this time, and the borrower is given additional time to negotiate a repayment plan or resolve the issue through bankruptcy proceedings.
In another example, a business that has taken out a loan faces temporary cash flow problems and misses a payment. The lender decides to issue a notice of acceleration, but the business negotiates with the lender for a stay of acceleration, giving it more time to make the payment without facing the immediate demand for full repayment.
An example of a stay of acceleration clause
Here’s how a stay of acceleration clause might appear in a loan agreement or bankruptcy filing:
“In the event of a default under this Agreement, the Borrower may request a stay of acceleration. The Lender agrees to temporarily suspend the acceleration of the loan for a period of [insert time frame], allowing the Borrower time to cure the default or negotiate a repayment plan. The stay of acceleration is subject to [insert conditions], and if the default is not cured by the end of the stay period, the Lender may proceed with acceleration.”
Conclusion
A stay of acceleration provides borrowers with temporary relief from the immediate financial pressure of having to repay the entire outstanding balance of a loan. Whether granted through legal proceedings, bankruptcy protection, or negotiated agreements, the stay allows additional time for borrowers to resolve issues or work out a solution. For lenders, a stay of acceleration can help manage defaults more effectively and ensure that both parties have an opportunity to address the situation fairly before taking drastic measures.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.