What Happens When a Creditor Tries to Lift the Automatic Stay in Bankruptcy?

If you're buried under a pile of bills and are unsure how you're going to pay them back, you may begin to feel helpless and lost. Many people in this situation feel as if they're never going to get relief. Nobody wants to file for bankruptcy, and, it has been my experience that the decision is usually made after all other options have been exhausted. But what most people don't know is that bankruptcy has the ability to provide them with relief from their debts and can give people a fresh financial start.

The moment you file for bankruptcy, the automatic stay goes into effect. This alone is one of the most compelling reasons to file for bankruptcy protection. I've heard creditors complain to countless bankruptcy judges that: "The debtor filed on the eve of trial". But, the automatic stay is not absolute, and creditors have the right to ask the bankruptcy court to remove the stay, and if successful, a creditor is allowed to continue their collection efforts against you.

What Is the Automatic Stay?

In bankruptcy, the automatic stay is a preliminary injunction that immediately stops most lawsuits, including collection lawsuits, filed against you. The automatic stay may also protect your money and property from creditors. Creditors must immediately stop all collection efforts against you such as wage garnishments, vehicle repossession, and foreclosures. When you file for bankruptcy, the automatic stay is automatically applied, and there are no additional actions you must take.

Why a Creditor Might Try to Lift the Automatic Stay?

For the most part, you won't have to worry about a creditor trying to lift the automatic stay when filing for bankruptcy. In some situations, a creditor may ask the court to lift the automatic stay. Creditors who have a lien on your property most commonly seek this action, such as a mortgage or car company, but any type of creditor has the right to request this relief. Some of the most common situations where creditors try to get the automatic stay lifted are:

  • You're behind on your mortgage payments
  • You're behind on your car payments
  • You're in a Chapter 13 repayment plan and have delayed paying back your creditors
  • Your bankruptcy schedules indicate that you want to voluntarily surrender your home or vehicle
  • Your landlord wants to evict you due to not paying your rent
  • The creditor holds a non-dischargeable debt (such as child support or alimony) and would like permission to collect the debt

Automatic Stay Exceptions

An automatic stay WILL NOT:

  • Help you with wage garnishment due to unpaid child or spousal support
  • Stop a criminal lawsuit
  • Stop your income from being withheld due to a loan from your pension

You also may only have 30 days of protection if you've filed again less than a year after you filed previously. You may be able to have this time extended.

How Is the Automatic Stay Lifted?

In some courtrooms, the automatic stay could be lifted by court order in certain situations, so you need to ask your bankruptcy attorney if this is something that you must worry about.

Normally, in order for a creditor to get the automatic stay lifted, they must file a written motion with the court. The motion must explain why the creditor is requesting that the protection of the automatic stay be lifted and provide a cause, which is a compelling reason for the request. If one of your creditors files a motion to lift the automatic stay, you're entitled to respond to the motion and to a hearing before the Court. It's the responsibility of the creditor to convince the bankruptcy court that there is a good enough reason to lift the automatic stay, and unless the creditor can provide very compelling circumstances, the court is usually predisposed to continue the bankruptcy protection.

What Happens After Automatic Stay is Lifted?

The court will either decide to grant or deny the creditor's motion. If the court chooses to deny the motion, the automatic stay will remain in place. If the court grants the motion, the creditor can resume collection efforts against you. For example, if the creditor is a mortgage company, they can proceed with foreclosing on your home. In some instances, the Court will want more information before taking action and will make specific requests from the attorneys or re-set the matter for an additional hearing.

Creditors rarely try to lift the automatic stay in bankruptcy, and they will only try to do so under very limited circumstances. If you are planning to surrender either real estate or personal property, the automatic stay may be of little value to you. Your bankruptcy attorney will be able to explain in detail when a creditor may try to lift the automatic stay. If that happens, they'll be able to guide you through the process of what to expect.