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Creditors & The Automatic Stay

When a debtor files bankruptcy the “automatic stay” requires creditors to immediately stop collection efforts against the debtor once a bankruptcy case is filed. However, there are certain circumstances where a creditor may ask the court to remove the protection of the automatic stay so that it can resume collection efforts. This is referred to as lifting the automatic stay. In limited circumstances, the stay may not go into effect at all or may last for only a short period of time, depending on how many times the debtor has filed bankruptcy.  The Callan Law Firm, P.C. represents landlords, contractors and other creditors in bankruptcy proceedings in order to seek relief from the automatic stay and otherwise protect creditor interests in bankruptcy.  For assistance collecting your claims and protecting your rights in collateral in bankruptcy, contact us now.

To learn more about the automatic stay, read on.

What Is the Automatic Stay?

A filed bankruptcy petition immediately operates as an automatic stay, which holds in abeyance various forms of creditor action against the debtor. Automatic stay provisions work to protect the debtor against certain actions from the creditor, including:

  • beginning or continuing judicial proceedings against the debtor
  • actions to obtain debtor’s property
  • actions to create, perfect or enforce a lien against a debtor’s property
  • set-off of indebtedness owed to the debtor before commencement of the bankruptcy proceeding.

A court may give a creditor relief from the stay if the creditor can show that the stay does not give the creditor “adequate protection” or if it jeopardizes the creditor’s interest in certain property. The court may give relief to the creditor in the form of periodic cash payments or an additional or replacement lien on the property.

When a Creditor Might Request That the Court Lift the Automatic Stay

In some situations, a creditor can request relief from the automatic stay so that the creditor can proceed with collection. This relief is most commonly sought by creditors who have a lien on property, such as a mortgage or car company or landlord.  However, any type of creditor has the right to request relief from the stay.  Generally, creditors dealing with bankruptcy are rewarded for exercising aggressive diligence, as bankruptcy, if left unchecked, can work as a long-term delay tactic which often causes significant losses to creditors.

Some of the more common situations where creditors may have good cause to file a motion to lift the automatic stay are:

  • Your tenant is not paying post bankruptcy rent.
  • Your debtor is using repeated bankruptcies to delay collection/repossession efforts.
  • The Debtor is unable to propose a feasible reorganization and is engaging in delay tactics
  • You, as creditor, hold a non-dischargeable debt (one that by law can’t be discharged in bankruptcy); an example of this would be child support, alimony, or criminal restitution.

How Is the Automatic Stay Lifted?

In order to get relief from the automatic stay, the creditor must file a motion for relief from the automatic stay with the bankruptcy court. The motion should argue why the creditor is entitled to have relief from the stay.  Generally speaking, whether the court will grant the motion will depend on whether the creditor is adequately protected or whether the property has equity making it necessary for an effective reorganization.  In most cases, an attorney will be necessary to prepare an effective motion for relief from the automatic stay.

Exceptions to the Automatic Stay

In certain situations the automatic stay never applies to your case or applies only for a short period of time. In particular, this might happen if you have filed for bankruptcy in the previous year.

  • Second bankruptcy filing. If this is the second time that you are filing for bankruptcy within a year, the automatic stay may only apply for thirty days.
  • Third bankruptcy filing. If this is the third time that you are filing for bankruptcy within a year, the automatic stay never goes into effect.

To begin bankruptcy collection efforts or to learn more about the bankruptcy stay, contact The Callan Law Firm, P.C. now.