When Can the Automatic Stay Be Lifted in a Bankruptcy Case?

 Posted on September 03, 2022 in Bankruptcy

Along with the ability to eliminate certain types of debts, one of the key benefits of bankruptcy is the automatic stay. This is an order that is put in place by a bankruptcy court immediately after a debtor files for bankruptcy, and it will force creditors to cease all collection actions during the case. This means that creditors cannot call, email, send letters, or otherwise communicate with a debtor. They cannot proceed with a legal judgment against a debtor, garnish their wages, freeze or seize their bank accounts, repossess a vehicle or other property, or take any other actions in an attempt to collect a debt. Any foreclosure proceedings that have been initiated must be put to a halt.

The automatic stay can provide a debtor with protections and give them some "breathing room" as they address their debts during the bankruptcy process. However, there are some situations where the automatic stay can be lifted. By understanding when a creditor may request an exception to the automatic stay, a debtor can make sure they are prepared to address these issues as they proceed with bankruptcy.

The Purpose of the Automatic Stay

The main purpose of the automatic stay is to provide a debtor with relief from creditor harassment and give them time to reorganize their finances during bankruptcy. It is designed to stop creditors from taking aggressive or unfair collection actions, and it also ensures that any assets turned over by the debtor will be distributed fairly without giving preference to any creditors.

During the bankruptcy process, the bankruptcy trustee will ensure that all issues related to the debts a person owes and the property they own will be handled correctly. However, there may be some situations where a creditor is concerned about their ability to recover what is owed and protect their financial interests, and they may request a termination of the automatic stay in order to address these issues.

Generally, the automatic stay may only be lifted if a creditor can show that it will be unable to recover the collateral in a secured debt. For example, if a person had defaulted on their auto loan and filed for bankruptcy before the creditor was able to repossess the vehicle, the creditor may be concerned that the vehicle could decrease in value because the debtor does not have insurance or because they may engage in risky behaviors that could cause the vehicle to become damaged. This would prevent the creditor from selling the vehicle at auction after a future repossession and recouping as much of the amount owed on the auto loan as possible. In this situation, the creditor may file a motion with the bankruptcy court asking for relief from the automatic stay that would allow it to proceed with a vehicle repossession.

Contact Our Mecklenburg County Bankruptcy Attorney

If you are considering bankruptcy and have questions about the automatic stay or other issues related to debts, collections, repossessions, or foreclosure, contact our experienced Gastonia bankruptcy lawyer today. At Blossom Law PLLC, we can provide you with the guidance and representation you need to ensure that your bankruptcy case will proceed as smoothly as possible. If you are concerned about actions that creditors may take, we can advise you on how to contest requests to lift the automatic stay, and we can ensure that you meet all requirements to receive relief from your debts. Call us at 704-256-7766 to set up a free consultation.

Sources:

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

https://www.thebalance.com/how-long-does-the-automatic-stay-last-316168