Lifting the Automatic Stay
The bankruptcy automatic stay is an enormously broad and powerful piece of legal protection. The stay is a temporary injunction that prohibits creditors from proceeding with collection actions against the debtor during the bankruptcy case.
The bankruptcy debtor is entitled to this protection automatically from the moment the case is filed. Creditors are “stayed” (stopped) from collecting or trying to collect until either the bankruptcy court modifies this injunction, or the debtor receives a discharge.
Before a creditor can proceed to collect on a debt, it must receive permission from the bankruptcy court. This process is commonly referred to as “lifting or modifying the automatic stay.” A creditor that does not first obtain this permission acts in violation of the bankruptcy court injunction, and may be subject to federal contempt of court charges.
When a “motion to lift stay” is filed, the debtor is entitled to notice and a hearing. A secured creditor will often file this motion if the debtor is not making payments on the loan. The bankruptcy court generally grants these requests when payments are delinquent, the loan is secured by a piece of property (i.e. car or house), and there is no equity in the property. Defending this kind of motion is generally a matter of catching the payments up to date.
In cases where the collateral for a loan is not insured, or there is no assurance that future payments will be made, the creditor may complain that it is not “adequately protected.” These are fair concerns that can be overcome with evidence of insurance and/or evidence of future ability to pay.
Recently debtors have had success in defending motion to lift stay filed by mortgage companies. One common defense is that the mortgage company cannot prove that it is the rightful owner of the mortgage, and therefore is not legally entitled to lift the stay (also known as a “lack of standing”). This is especially true when a mortgage has been transferred several times over the years, and the original note has been lost.
Unsecured creditors and other parties in interest can ask the court to lift the stay. These requests are generally denied when the debt will be included in the bankruptcy discharge. On the other hand, the request is likely to be granted when it is excluded from the discharge. Debts commonly excluded from the bankruptcy discharge include child support obligations, spousal support, criminal restitution and fines.
A motion to lift stay is a common event in the bankruptcy courts and is generally very predictable. In many cases your bankruptcy attorney expects the motion and can discuss it with you even before your case is filed.
Legal disclaimer: Disclaimer: This answer does not constitute legal advice. I am admitted in the State of Illinois only and make no attempt to opine on matters of law that are not relevant to Illinois. This advice is based on general principles of law that may or may not relate to your specific situation. Facts and laws change and these possible changes will affect the advice provided here. Consult an attorney in your locale before you act on any of this advice. You should not rely on this advice alone and nothing in these communications creates an attorney client relationship.
ABOUT THE AUTHOR: Charles E. Glanzer
Charles Glanzer is one of the founding partners of Glanzer & Associates, P.C. Charlie has been licensed to practice law in Illinois since 1992, and has worked for some of Chicago's largest bankruptcy firms. Charlie focuses his practice on representing clients in Chapter 7 and Chapter 13 bankruptcy cases. Charlie represents his clients with a high level of sensitivity and professionalism, and has discharged millions of dollars of debt for his clients. Charlie's commitment to helping people in financial distress not only involves relieving his clients of their financial burden, but also counseling them about life after bankruptcy and rebuilding their credit.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.