Grounds for Creditors’ Relief from the Bankruptcy Automatic Stay

Once a bankruptcy petition is filed in court, an automatic stay goes into effect that prevents creditors from taking further action to enforce most debt obligations. The purpose of the stay is to give the debtor time to reorganize its finances through the bankruptcy process. The stay remains in effect throughout the duration of the case or until the bankruptcy court issues further orders affecting it. 

One way that the stay can be modified is when a creditor seeks to have it lifted for certain debts. Relief from stay can be granted for any of the following reasons:

• Bad faith — This means the debtor has allegedly filed for bankruptcy to elude or frustrate creditors or otherwise without legal justification. For example, the debtor may have filed several successive bankruptcies in a short period of time, all of which are later withdrawn or dismissed. Some debtors make serial filings solely to take advantage of the automatic stay.

• Foreclosure — If a parcel of real property owned by the debtor is being foreclosed on or is about to be foreclosed on and if the property is worth less than the outstanding loan, the creditor may argue that the loan cannot be reorganized because there is no equity value. As such, the automatic stay is only preventing the creditor from pursuing its rights.
• Good cause — There are a number of scenarios in which a creditor can claim good cause for lifting the stay. The creditor can argue that it will suffer undue and substantial harm while the stay is in effect. An example of relief from the stay for good cause is when there is litigation pending in civil court that will affect the bankruptcy and the creditor wishes to join the debtor as a defendant. 

The bankruptcy court will not lift the automatic stay just because a creditor has a viable argument for relief. The creditor has the burden of submitting evidence and the debtor has an opportunity to submit opposing arguments and proofs. The court will consider various factors in deciding whether to grant relief from the stay or to keep the stay in force. A qualified bankruptcy attorney can make the strongest arguments possible on either side of the case. 

Michael Jay Berger in Beverly Hills has successfully handled hundreds of relief from stay motions, representing both debtors and creditors. If you have any questions about bringing or opposing relief from stay motions, contact us online or call 310-271-6223 to schedule a free initial consultation.