Lifting the Automatic Stay Frees Creditors to Collect

By Cara O'Neill, Attorney
Find out how a creditor can ask the court to remove the order that stops collection activity while you're in bankruptcy.

If you cringe every time the telephone rings, it’s likely that your bills are piling up, and you want the harassing creditor calls to stop. Bankruptcy can help. Filing your paperwork triggers an order called the “automatic stay” that forbids your creditors from pursuing collection activities against you. Not only does it bring creditor calls to a halt, but it stops foreclosure actions, repossessions, and lawsuits, too. However, there are several ways that you can lose the stay’s protection, and if you do, your creditors are free to collect once again.

How Does a Creditor Lift the Automatic Stay?

A creditor can ask the court to do away with the stay by filing a legal document called a motion for relief from the stay. After reviewing the paperwork and hearing each side’s position, the judge has several options. For example, the court can:

  • grant the creditor’s request to end the stay
  • modify the order (perhaps by giving the filer time to bring the loan current or to take some other action), or
  • deny the motion.

If the creditor loses, the stay will remain in place. If successful, the creditor can resume debt collection activities. (Find out about collection tactics by reading Delinquent Debt: What to Expect in Debt Collection.)

When Will the Court Agree to Lift the Automatic Stay?

Creditors want to get their money back as soon as possible, so anytime a creditor can assert a right or an argument that supports getting the matter out of bankruptcy court, it will file a motion asking to do so. Even so, some situations arise more frequently than others. For example, the likelihood of finding yourself facing a motion to lift the stay will increase if:

  • the creditor has a right to seize your property
  • you’re being sued in state court, or
  • a landlord has an eviction judgment and wants you off of the property.

You’re Behind on a Debt Guaranteed With Property

To keep a house or car in bankruptcy, you must be able to make your payment. If you’re behind on either account (or another secured debt), the lender has the right to take the property, sell it, and apply the proceeds to your outstanding balance. Filing for bankruptcy doesn’t change this right.

(Learn more about secured claims by reading Creditors with Secured Claims Are Paid First.)

Example 1. You’re behind on your house payment when you file your Chapter 7 bankruptcy and miss another payment afterward. The secured creditor might seek relief from the stay so it can foreclose on your home while you are still in bankruptcy rather than waiting until your case is over. (Find out more in Secured Claims in Chapter 7 Bankruptcy: Can I Keep My House or Car?)

Example 2. You file a Chapter 13 bankruptcy and are several months behind on your car payment. Although you made arrangements to catch up on the past-due amount in your repayment plan, you miss several more payments after you file your case. The lender might ask the court to lift the stay so it can take steps to repossess the car. (If this is a problem you’re facing, you might want to read Secured Claims in Chapter 13 Bankruptcy: Can I Catch Up on My House or Car Payment?)

A Creditor Wants To Continue With a State Court Lawsuit

It’s never fun to be sued in state court, but it happens. Filing for bankruptcy will get you out of a lawsuit if a creditor is asking for money from you. Even so, the bankruptcy court will allow a suit to continue while you’re in bankruptcy if it makes sense to do so.

Other people will be affected negatively. The court will allow a long-standing lawsuit to continue if the people involved have already invested a significant amount of time and money into it, especially if your involvement is needed for someone else’s matter, or the outcome is important in the bankruptcy case.

The case seeks to change your behavior. Courts will allow a state case to go forward if money isn’t involved. For instance, suppose that the government brought a suit against you demanding that you clean up your yard. Because the condition of your yard isn’t related to a debt owed to a creditor, the bankruptcy court will likely allow the case to continue.

Your Landlord Wants You Out

Filing for bankruptcy stops your landlord from proceeding with an eviction action against you, and, if your state law allows for it, you might get to stay put until your case is over. But not always. Your landlord might have the right to file a motion asking to lift the stay so that the eviction process can proceed. Before filing bankruptcy to stop an eviction, you should speak with a local bankruptcy attorney.

When Does the Stay Lift Automatically?

Once your bankruptcy case closes, the automatic stay that protected you from your creditors will go away, and your creditors will be able to resume collection efforts against you.

Your Case Closes Without a Discharge

If you fail to do everything that you’re supposed to do in your bankruptcy case, the court might dismiss your matter before you receive a discharge. For instance, your case could close if you:

If your case closes because you didn’t complete necessary requirements, all of your creditors will be able to pursue you again.

You Still Have Debt Remaining After Your Discharge

Not all debt gets discharged (wiped out) in bankruptcy. If you have nondischargeable debt—such as child support arrears or tax debt—you’ll remain responsible for it, and the remaining creditors can start collecting again after your case closes.

Repeated Filings: When the Automatic Stay Isn’t So Automatic

If you filed multiple bankruptcy cases within the previous year, the stay’s protection is more limited. Here’s how it works.

  • You will receive 30 days worth of automatic stay protection if you’ve had a case dismissed within the year.
  • You wouldn't receive any protection if you filed two previous cases within the year.

In the first instance, you can ask the court to extend the stay by filing a motion within 30 days of your filing. In the second case, you’ll need to be prepared to demonstrate that you brought the current case in good faith. In other words, you must prove that you’re not using the bankruptcy process to “game the system” in some way.

Questions for Your Attorney

  • Should I expect any of my creditors to seek relief from the stay?
  • Will I have a valid defense to the motion?
  • Does my retainer include responding to a motion to lift the automatic stay?
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