When a Creditor Tries to Lift (Remove) the Automatic Stay

The automatic stay is not absolute – creditors can ask the bankruptcy court to remove the stay, called lifting the automatic stay.

The automatic stay is an order that goes into place and stops most collection efforts during your bankruptcy. But the stay isn’t absolute. A creditor can ask the bankruptcy court to lift the automatic stay and allow collection efforts to resume. If successful, the creditor can continue pursuing its debt.

Read on to learn what a creditor must do to lift the stay, when the court might agree to lift the stay, and more.

The Automatic Stay Stops Collection Actions

The automatic stay prohibits creditors from collecting debts during your bankruptcy case. It’s “automatic” because in most cases, it takes effect immediately and stops (stays) collection action on many debts incurred before the bankruptcy filing. (There are exceptions, however, such as if the court dismissed your case during the preceding year.)

The automatic stay gives you a breathing spell from creditor harassment while you develop a plan to reorganize your finances. It also prevents one creditor from grabbing all of the available assets so that all creditors receive a fair share.

It only has a few narrow exceptions—such as for domestic support obligations—so creditors must be careful during a bankruptcy case or risk violating the court’s injunction.

When a Court Might Lift the Automatic Stay

Below are some situations wherein a creditor might seek to lift the automatic stay.

Motions by Secured Creditors

If you’re behind on your mortgage when you file for Chapter 7 bankruptcy, your mortgage lender is likely to ask the court to lift the stay so it can continue with foreclosure. Secured creditors—such as your home or car loan lender—frequently file these motions when the borrower isn’t making payments, and there isn’t enough equity in the property to cover the loan (sometimes called an “equity cushion”).

The court might deny the motion if the debtor shows that the equity is sufficient to repay the loan and that the lender is “adequately protected” from financial loss. Because you must pay for property serving as collateral for the secured debt—such as your home or car—or return it to the lender, the court will typically lift the stay if the debtor can’t bring the payments current.

(Learn more about secured debts in Secured Debt & Property in Chapter 7 Bankruptcy.)

Motions by Unsecured Creditors

It’s unusual for an unsecured creditor to file a motion to lift the automatic stay. The court might grant the request if the unsecured debt won’t be discharged (wiped out) in a Chapter 7 bankruptcy case. But given that most Chapter 7 cases last only four months, most creditors will simply wait to continue collecting until the case ends. In a Chapter 13 case, the debtor must repay most nondischargeable debts in full over the course of a three- to five-year Chapter 13 repayment plan so there usually isn’t much need to lift the stay.

A landlord who wants to evict you while you’re in bankruptcy might ask for relief from stay to move forward with eviction proceedings. You’ll find more specific information in Evictions and the Automatic Stay in Bankruptcy.

How a Creditor Asks the Court to Lift the Automatic Stay

If a creditor wants to collect from the debtor during the bankruptcy, it can seek permission directly from the court by filing a motion asking for relief from the automatic stay.

You don’t have to worry that all of your creditors will file motions to lift the stay. In fact, it doesn’t happen that often. But if it does, you’ll find out, because the debtor is entitled to receive notice and a hearing. Also, it’s the responsibility (or burden) of the creditor to convince the bankruptcy court that there is a valid reason to lift the stay. For instance, the court won’t lift the stay if an unsecured debt will be discharged.

In most cases, a bankruptcy attorney will be in the best position to help you determine how to proceed in light of a creditor’s motion to lift the automatic stay.

(Learn more in What Will Happen in Bankruptcy Court?)

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