Can a Creditor Lift the Automatic Stay in a Bankruptcy Case?

 Posted on April 20, 2022 in Bankruptcy

For those who have significant debts or who have experienced financial hardship, bankruptcy may provide them with the ability to regain financial stability. After a person files for bankruptcy, the court will place an automatic stay on all collection actions by creditors. This will prevent creditors from contacting a debtor, seeking repayment of debts that are owed, pursuing judgments against a person, taking actions to enforce judgments (such as wage garnishment), repossessing property, or proceeding with a home foreclosure. The automatic stay will provide a person with protection during the bankruptcy process, allowing them to determine the best ways to address their debts. However, there are some situations where creditors or other parties may request to have the automatic stay lifted so they can proceed with collections or other actions against a debtor. By understanding when relief from the automatic stay may be available, a person can determine the best ways to respond to these requests.

Motions for Relief From the Automatic Stay

Most of the time, a creditor will only be able to lift the automatic stay if they can show that there is good cause to do so. Creditors or other parties may file a motion for relief from the automatic stay in cases involving:

• Secured debts - The most common reasons why creditors seek relief from the automatic stay often involve a desire to protect their interest in property or assets that are in the possession of the debtor. For secured debts, creditors will have a financial interest in the collateral used to secure the debts, and in some cases, creditors may believe that they will be unable to fully recover the amount owed to them. For example, if a debtor has defaulted on an auto loan, the creditor may be concerned that if they are unable to repossess the vehicle, the debtor may take actions that decrease the value of the vehicle, preventing the creditor from being able to recover what is owed. A creditor may be able to lift the automatic stay and proceed with a repossession if they can show that they do not have adequate protection against financial losses and that the debtor does not own any equity in the collateral.

• Unsecured debts - Most of the time, unsecured debts will be discharged during bankruptcy. While the automatic stay will prevent creditors from taking action to collect the amounts owed, they may receive repayment for some of what is owed through the liquidation of assets in a Chapter 7 bankruptcy or payments made in a repayment plan in a Chapter 13 bankruptcy. Because of this, these creditors will usually be required to abide by the restrictions of the automatic stay. However, there are some unique situations in which unsecured creditors may be able to request relief from the automatic stay, such as when certain debts will not be discharged in a debtor’s bankruptcy case.

• Other actions - The automatic stay may apply to parties other than creditors, and these parties may file requests that will allow them to proceed with certain actions. In some cases, residential landlords may seek to proceed with an eviction if a tenant will be unable to pay all rent that is due. A motion for relief from the automatic stay may also be filed during divorce proceedings so that a spouse may gain information about whether the couple’s marital property will be considered during a bankruptcy case.

Contact Our San Antonio Bankruptcy Protections Lawyer

If you are unsure about how different types of debts will be handled when you file for bankruptcy, the Law Offices of Chance M. McGhee can answer any questions you have and help you determine how to proceed with your case. We will make sure you understand the protections that are provided by the automatic stay, and we can advise you on how to respond to requests for relief from the automatic stay by creditors or other parties. Contact our Boerne bankruptcy and debt relief attorney at 210-342-3400 and set up a free consultation to get the legal help you need.

Sources:

https://www.law.cornell.edu/uscode/text/11/362

https://www.law.cornell.edu/rules/frbp/rule_4001

https://www.txwb.uscourts.gov/l-rule-4001-relief-automatic-stay-prohibiting-or-conditioning-use-sale-or-lease-property-use-cash