Filing bankruptcy automatically stays (stops) most actions against the debtor or the debtor’s property.
The stay is effective even if the creditor doesn’t yet know about it.
The stay covers such things as foreclosures, lawsuits, or garnishments. 11 U.S. C. 362.
The stay is designed to preserve the debtor’s property and to give the debtor a break from litigation.
When can a creditor get “relief” from that stay?
A creditor seeking relief from the stay to go forward against the person filing or the debtor’s property must show the bankruptcy judge that there is “cause” for the granting of relief.
Cause might include showing that the creditor’s interest in particular property is not “adequately protected”, or showing that the debtor has no equity in the property and that the property is not needed for a reorganization.
Most often, it is the secured creditor who wants relief from stay to foreclose on real estate or to repossess a car. Creditors can frequently get relief from the stay to foreclose on property in which the debtor has no equity or where the property is not insured.
Where the equity cushion (the difference between the creditor’s claim and the value of the property) is small, the debtor may have to make “adequate protection payments” to the creditor to preserve the equity cushion for the creditor’s benefit as a condition of the stay remaining in effect.
Sometimes, creditors want relief from stay to pursue the debtor’s insurance coverage. Such relief is generally granted if the creditor agrees to limit the collection of his judgment to the insurance.
Another common situation here a creditor might seek relief from the automatic stay is the multi-party case where the plaintiff does not want to try the case without the debtor being a party (which would be the result if the stay is not lifted).
Judges vary on their approach to these cases: some judges insist that the debtor be severed from the case and trial involve only the other defendants; others will grant relief, with some restrictions on the creditor’s rights against the debtor should the creditor get a judgment.
When relief from stay is granted, it does not remove the property from the bankruptcy estate or grant the creditor ownership of the property. It simply removes the stay and restores the parties to their state law rights. Creditors can then enforce those rights to the extent that the relief from stay order permits.
Thus, if a mortgage holder gets relief from stay, it doesn’t grant the creditor ownership of the collateral, it just frees the creditor to exercise whatever remedies the creditor had outside of bankruptcy.
To get relief from stay, you need a lawyer. The lawyer needs information about the claim against the debtor or the debtor’s property; information about the value of any collateral for the debt; and information about other liens or claims against the property.
Relief from stay motions are generally heard on short notice (10-20 days); the court may grant relief at the initial hearing or set an evidentiary hearing to make a final decision.
In the typical individual bankruptcy case, the automatic stay is replaced by the discharge injunction at the end of the case.
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