The Bankruptcy Automatic Stay: How to Make it Last

The bankruptcy automatic stay is a critical protection in both Chapter 11 and Chapter 13 bankruptcy cases, pausing all collection actions against the debtor once the case is filed. In general, the automatic stay remains effective for the duration of the bankruptcy proceedings. However, the stay can be lifted in certain circumstances, such as where the bankruptcy court finds that creditors’ interests need protection.

In Chapter 11, which is used by businesses or individuals to reorganize debt, the automatic stay begins as soon as the bankruptcy petition is filed and typically continues throughout the reorganization process. The duration can vary, but the stay generally remains in place until the court confirms the debtor’s reorganization plan or the case is dismissed or converted to a different chapter. If a confirmed plan requires ongoing payments, creditors cannot take action on pre-petition debts covered in the plan unless the debtor defaults.

In Chapter 13, which is used by individuals with regular income to partially repay their debts, the automatic stay also begins upon filing and typically lasts throughout the repayment period, which can last three or five years. The stay remains in effect while the debtor adheres to their payment plan terms. Upon completion of the plan, most remaining dischargeable debts are discharged, and creditors lose any further right to collect on those debts. However, if the debtor fails to comply with the plan, the case might be dismissed, lifting the stay.

Although the automatic stay offers essential protection, it is not absolute. Creditors can request the court to lift the stay under certain circumstances. A common reason for relief of stay is a lack of adequate protection for a secured creditor. If a debtor fails to make necessary payments or the asset’s value declines significantly, the court might lift the stay to allow repossession.

Another ground for lifting the stay is if the creditor’s interest isn’t protected. For instance, if a mortgage holder cannot receive payments and the property’s equity does not adequately secure the loan, the court may lift the stay.

The stay might also be lifted if the property is not part of the bankruptcy estate or if the case is filed in bad faith, meaning the debtor has no genuine intent or ability to repay or reorganize their debts. Serial bankruptcy filers may face stay restrictions. Under the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), repeat filings within a year result in a shorter stay, unless extended by court order.

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.