When Can a Creditor Get Relief From the Automatic Stay?

The automatic stay protects bankruptcy filers from collection efforts, but creditors may be able to collect despite the stay.

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Once a debtor files for bankruptcy, an automatic stay goes into effect immediately, which stops creditors from attempting to collect their debts. Generally, creditors may not take money or property from the debtor while the case is proceeding. However, there are some exceptions providing creditors relief from bankruptcy's automatic stay.

What Is the Automatic Stay?

The automatic stay is an injunction: a court order directing creditors to stop collection efforts against the bankruptcy filer. It stops lawsuits, foreclosures, wage garnishments, phone calls from debt collectors, and other collection tactics. It stops these actions as soon as the bankruptcy petition is filed, but creditors can file a motion asking the court to "lift" the stay, if they can show good cause. Also, some collection efforts aren't stopped by the automatic stay. 

Actions That Can Continue Despite the Stay

Certain debts aren't affected by the stay. For example, proceedings to collect back taxes or child support can continue, just as if the bankruptcy case had never been filed. 

In the case of secured debts (debts for which property serves as collateral, such as a car loan or mortgage), collection proceedings are stopped by the stay. However, as part of the bankruptcy case, the debtor will have to decide what to do with the property securing the debt. The debtor can always give the property back to the creditor. If the debtor wants to keep the property, however, he or she will have to pay the creditor what it's worth or enter into a new agreement -- which will survive the bankruptcy case -- to make payments on the property. 

Certain evictions can also continue despite the automatic stay. If a landlord has already gotten a judgment for possession of the property before the tenant filed for bankruptcy, the landlord can continue with eviction proceedings. A landlord may also evict a tenant during a bankruptcy case if the tenant has endangered the property or illegally used controlled substances on the property. In these situations, the landlord must file a certification of the facts underlying the claim, then can proceed with the eviction 15 days later. If the tenant disputes the landlord's claims, the court will hold a hearing. 

Motions to Lift the Stay

Creditors that are subject to the automatic stay may ask the court to lift the stay and allow them to proceed with collection efforts. If the creditor can show that its interest in the property is not being adequately protected -- for example, because the debtor is not taking care of a car subject to a vehicle loan -- the court might lift the stay to allow the creditor to repossess, or it might order the debtor to make payments to the creditor during the bankruptcy case. 

If the creditor can show that its action will take place regardless of the bankruptcy case, the court may also lift the stay. For example, if a debtor filed for bankruptcy just before a foreclosure took place, and the debtor has no equity in the home, a court might allow the creditor to go ahead with the foreclosure.

Speaking with an Attorney

The automatic stay is an important bankruptcy protection. If you have filed for bankruptcy and a creditor is trying to lift the stay to proceed with collection activity, you may wish to talk to an experienced lawyer, especially if the property is important to you. A lawyer can help you decide whether you have legal grounds to challenge the creditor's action and protect your property. 

by: , J.D.

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