When Can a Creditor Get Relief from the Bankruptcy Automatic Stay?

The day you file a Chapter 7 or Chapter 13 case with the bankruptcy court, an automatic stay is imposed that requires your creditors to cease their collection practices. The stay prohibits phone calls, letters, lawsuits, wage garnishments and executions on property, such as mortgage foreclosures. The court can impose penalties such as attorneys’ fees, actual damages and punitive damages on creditors who willfully ignore the stay.

The automatic stay is not absolute. A creditor may file a petition asking the court for relief based on good cause shown. The court often grants this petition unless the debtor successfully defends against it. These are common for seeking to lift the stay:

1. A secured creditor wants to foreclose on real estate, repossess a vehicle or otherwise execute on a security interest.
2. A creditor wants to pursue the debtor’s insurance coverage relating to the debt.
3. The creditor wants to include the debtor as a defendant in a multi-party case, which would not be possible if the stay remains in effect.
4. A creditor believes the debtor is using the automatic stay as a shield to perpetrate fraud.
5. In a Chapter 13 case, the debtor is not able to fund the repayment plan or maintain insurance.

If a creditor seeks to lift the stay, there are still ways the debtor can mount a successful defense. Here are some typical strategies:

• Show the court that the equity in the collateral sufficiently secures payment of the debt. If a bank loans $25,000 for the purchase of a $75,000 car, and the debtor brought the other $50,000 to close the purchase, the creditor has adequate security, provided the value of the car has not depreciated too much. The value of the collateral becomes the issue in demonstrating the equity cushion.
• Show that lifting the stay would cut other creditors off from assets the trustee could use to pay their debts. An example is when a debtor uses an investment account to secure a loan for something else or for investments that themselves may not be collateralized. Or, if the collateral is worth far more than the debt, the proceeds from selling it could satisfy more than just the lienholder.

These strategies can maintain the stay and defeat the creditor’s petition, but you need to discuss all viable approaches with your bankruptcy attorney.

Jeff Field & Associates is a full-service bankruptcy and debt relief firm with six locations in the Atlanta, Marietta, and Athens areas of Georgia. Contact us online or call 404-381-1278 for a free initial consultation.