When Can Creditors Lift the Automatic Stay in a Bankruptcy Case?

 Posted on November 24, 2021 in Debt Collection

A creditor’s ability to collect debts that are owed will be affected by a debtor’s bankruptcy filing. After a debtor files a bankruptcy petition, the creditor will be subject to an automatic stay that will prevent them from taking any collection actions. However, there are some situations where creditors may be able to file a lift stay motion asking the court to allow them to take action to protect their financial interests. By working with an attorney who has experience in matters involving debt collection, a creditor can make sure they will be able to recover as much of what is owed as possible.

Relief From the Automatic Stay

In general, a creditor may be able to lift the automatic stay if they can show that they will suffer immediate and irreparable losses due to their inability to collect debts. The court may allow the automatic stay to be lifted in multiple situations, including:

Lack of equity in property secured by collateral - In a secured debt such as a home mortgage or auto loan, the property purchased through the loan will serve as collateral. If the value of the property is less than what the debtor owes on the loan, the debtor will not have enough equity in the property to repay what is owed. In these cases, a creditor may be able to have the automatic stay lifted so that they can proceed with a mortgage foreclosure or the repossession of property. Even if a lift stay motion is not granted, a creditor may proceed with repossession if a debtor does not take steps to redeem or reaffirm a secured loan within 30 days after filing for bankruptcy.

Lack of protective measures for collateral - If a creditor is concerned that property secured by collateral will be damaged or destroyed, they may ask for the automatic stay to be lifted so that they can proceed with repossession. The stay may be lifted in cases where a creditor is seeking to repossess a vehicle that is uninsured or believes that a homeowner may damage property before being evicted.

Serial bankruptcy filers - If a debtor files for bankruptcy twice within one year, the length of the automatic stay will be limited to 30 days. If a debtor files for bankruptcy a third time within 12 months, no automatic stay will apply. The court may allow the automatic stay to be lifted if a debtor is potentially abusing the bankruptcy process in an attempt to avoid paying debts.

Contact Our Chicago Lift Stay Motion Attorneys

When a debtor files for bankruptcy, creditors will need to determine whether they have options for collecting the debts that are owed or repossessing property. While the automatic stay will prevent creditors from taking certain actions, it may be possible to have this stay lifted in some cases. At Dimand Walinski Law Offices, P.C., we work with creditors to help them understand the steps they can take to protect their financial interests, and we can help file lift stay motions and assist with the process of debt collection and asset recovery. Contact our Chicago bankruptcy and debt collection lawyers at 312-704-0771 to set up a confidential consultation today.

Sources:

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

https://www.mieb.uscourts.gov/how-file-motion-relief-automatic-stay

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