When Can a Creditor Get Relief from the Bankruptcy Automatic Stay?

One of the most powerful features of the bankruptcy code is the automatic stay that goes into effect once a debtor’s petition is filed in court. The automatic stay prevents creditors from taking further action to enforce most debt obligations. The purpose is to give the debtor some time to reorganize or to discharge debts through the bankruptcy process. The stay remains in effect until the bankruptcy court issues further orders affecting the stay or concludes the bankruptcy proceedings. However, there may be reasons for which a creditor can have the court lift the stay regarding certain debts.

Grounds for granting relief from the automatic stay include the following:

• Bad faith — This means the debtor has allegedly filed for bankruptcy to elude or frustrate creditors with no legal justification. An example of bad faith is when the debtor files several successive bankruptcies in a short period of time, all of which are later withdrawn or dismissed. Some debtors make these serial filings solely to take advantage of the automatic stay.
• Foreclosure — Sometimes a parcel of real property is the debtor’s only sizeable asset and it is either being foreclosed or about to be foreclosed. If there is no equity in the property — that is, the property is worth less than the outstanding loan — the creditor may argue that the loan cannot be reorganized. As such, the automatic stay is only delaying the inevitable and preventing the creditor from pursuing its rights.
• Good cause — There are a variety 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 proof in any motion for relief from the stay. Moreover, the debtor has an opportunity to challenge the creditor’s request. The creditor’s theory or evidence may be weak, while the debtor may have compelling reasons for the stay to remain in effect. A qualified bankruptcy attorney can make the strongest arguments possible for keeping the stay in force.

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.