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What Is an Automatic Stay and Can it Be Lifted?

Posted By Ryan Albaugh || 1-Aug-2019

The moment a person files for bankruptcy, the court will issue an order for an automatic stay. This document allows the debtor relief, as it is a legal mandate that prohibits creditors from continuing to collect on unpaid debts and stops civil lawsuits. It is valid as long as the bankruptcy is in process or completed. If the case is dismissed, the court order will no longer be enforced.

What Types of Actions Does an Automatic Stay Stop?

Under 11 U.S. Code § 362, a stay prevents the following:

  • Beginning or continuing a civil action against the debtor;
  • Enforcing a judgment issued before the bankruptcy was filed
  • Attempting to repossess property
  • Enforcing a lien against property
  • Enforcing a lien that occurred before the bankruptcy
  • Seizing deposits for the balance owed on a loan
  • Commencing or continuing a tax liability proceeding

In some circumstances, a creditor might not be aware of the automatic stay and may try to collect on a debt. If this happens, the debtor must ensure they have included the loan on their bankruptcy filing. Once confirmed, they must notify the creditor of their declaration and the order issued. After it’s aware that it can no longer contact the debtor for a defaulted loan, the company must stop collection actions. However, if it continues to attempt to collect, it could be held in contempt of court. The debtor could also take legal action.

Motion to Lift an Automatic Stay

In some circumstances, a creditor can petition the bankruptcy court to remove an automatic stay for its specific debt. The motion must detail why the stay should be lifted and demonstrate that the removal will not negatively impact other lenders. These requests are generally made when real property is involved, such as with mortgages or car loans. However, any creditor could file a motion to remove the prohibitions.

When a motion is filed, the debtor can attend a hearing to challenge the request. The burden rests on the creditor to prove the stay should be lifted.

Generally, it’s rare for a court to lift an automatic stay. However, if it approves the creditor’s motion, debt collection could recommence.

Discuss Your Case with Albaugh Law Firm

If you’re struggling to manage debts, our attorneys are here to help you understand the relief processes. We have over 70 years of collective legal experience, and we know what creditors are prohibited from doing when a person declares bankruptcy. We will ensure your consumer rights are protected.

Reach out to us at (904) 637-1839 or online today for a free consultation.