What Happens When a Creditor Fights the Automatic Stay?


When an individual gets to the point where they feel the need to file bankruptcy, odds are that person needs some relief from creditor harassment and constant bill-collector communication. This is where the automatic stay comes in. It is often one of the biggest benefits to pursuing bankruptcy, getting that immediate halt to debt collection actions. Creditors do have the right to fight the automatic stay, however. What happens when a creditor tries to get past the automatic stay?

What Is the Automatic Stay?

As soon as the bankruptcy petition is filed, the automatic stay is issued. This automatic stay acts as an injunction that prohibits creditors from continuing to collect on a debt while the bankruptcy case is in process. The purpose of the stay is to give the debtor relief from collection activities while they work through the Chapter 7 and Chapter 13 bankruptcy process. Only a few narrow exceptions exist that allow creditors to avoid or overcome the automatic stay, but it is possible.

Filing a Motion to Lift the Stay

If a creditor wants to get past the automatic stay, the first step is to get permission from the court through a Motion to Lift the Stay. This motion is filed formally by the creditor through the bankruptcy court. The debtor is given notice of this motion and the right to have a hearing to argue against the motion. The creditor must prove to the satisfaction of the court that good cause exists for why the court should lift the stay. If not proven, the court will be more likely to continue the protection of the automatic stay for the Debtor.

Motions to Lift Stays by Secured Creditors

One specific situation where the court may lift or terminate the stay is if the creditor requesting it is a secured creditor. If the debtor fails to make a payments on an asset that serves as collateral for a debt, the court may lift the stay. This may be prevented if the debtor is able to bring the payments current or give a good reason for denying the motion, such as showing that it will be a part of the Chapter 13 reorganization payment plan.

No Adequate Protection

Occasionally, a secured creditor will file a motion to lift the stay asserting that the creditor is not adequately protected. In most instances, this means that the value of the creditor’s collateral is declining while the debtor uses the collateral and is not making payments. However, the creditor will need to show that the debtor is, in fact, indebted to the creditor who is seeking the relief to prove standing.

Motions to Lift the Stay by Unsecured Creditors

Occasionally, unsecured creditors will also seek to get the automatic stay lifted by the court. Unsecured debts are those do not have a security interest in or lien on debtor’s property. For instance, civil judgments such as for child support or spousal support, as well as criminal restitution, are examples of unsecured debt for which the automatic stay does not apply or may be terminated. These financial obligations are not dischargeable and will follow the debtor even after bankruptcy.

In some situations, a landlord may request the bankruptcy court to lift the stay in order to evict the debtor, as tenant, for nonpayment of rent. The court will look at the debtor’s rent obligation by dividing it into what it was pre-bankruptcy and post-bankruptcy. Any rent amounts that were pre-bankruptcy are dischargeable.

Post-bankruptcy rent payments are not dischargeable. This means that the automatic stay would keep the landlord from collecting on unpaid pre-bankruptcy rent. This may seem unfair to the landlord but fair if the tenant is trying to keep a roof over their head while getting back on their feet. However, after bankruptcy is filed, if the tenant continues to not pay, the landlord may still evict. This means the debtor needs to keep paying to live in the location and should not assume the automatic stay will keep him or her in the home or apartment rent-free for the long run.

Contact an Arlington Bankruptcy Attorney for a Free Consultation Today

An experienced Texas bankruptcy lawyer can help you with any questions you may have about protections of the automatic stay. Call the Law Office of Marilyn D. Garner NOW at (817) 505-1499 for a free consultation to discuss how bankruptcy may help you.

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