I got a "Motion to Lift the Automatic Stay." What does this mean?

            It is not uncommon for me to receive a telephone call from a bankruptcy client at Halcomb Singler letting me know that they received a motion to lift the stay, but they don't know what it means.

            Before we can discuss what it means to lift the automatic stay it is important to understand what the automatic stay does in a bankruptcy case.  The automatic stay is a legal term that refers to the protection that a debtor receives from creditors during the course of a bankruptcy proceeding.  Typically, (though not necessarily if the debtor has had bankruptcy cases dismissed in the prior year) when a bankruptcy petition is filed creditors are no longer allowed to try to collect from the debtor(s).  This means that lawsuits are stopped, the phone will stop ringing off the hook and any wage garnishment will stop.  The automatic stay is one of the reasons why filing bankruptcy can be such a relief to debtors and probably part of the reason bankruptcy is sometimes referred to as bankruptcy protection.

            However, the automatic stay does not protect debtors in every circumstance.  There are exceptions for divorce, criminal proceedings and several others that are beyond the scope of today's discussion.  In addition, a creditor can ask the bankruptcy court for permission to "lift" the stay to continue collection efforts against the debtor in some circumstances.  So, when a creditor files a Motion to Lift the Automatic Stay it typically means that they want to continue to collect or continue litigation on a debt that is not allowed due to the automatic stay.

            The most common reason for a creditor to file a motion for relief from the automatic stay is because the debtor owns a home that he or she is surrendering (walking away from) in bankruptcy or because a debtor is behind in payments on a house that he or she wants to keep.  Since the lender knows that the debtor is not going to be making them any more payments they want to get permission from the Court to either file a mortgage foreclosure lawsuit or to continue to litigate a mortgage foreclosure lawsuit that it filed prior to the debtor's bankruptcy.  In order to lift the stay a creditor must show that it has a lack of adequate protection in property, that the debtor does not have equity in such property and that it is not necessary to an effective reorganization.

             If a debtor wants to surrender a house through bankruptcy there is likely nothing that needs to be done in response to a motion to lift the automatic stay.  However, if the debtor is attempting to retain the house an objection must be made to the motion or it will be granted by the judge.  If the debtor files an objection the motion will be set for hearing in front of the judge.  At that hearing the debtor will have the opportunity to tell the judge why the lender should not be able to lift the automatic stay.  The most common reason that debtors object is that they disagree with the lender's accounting.  In short, the debtor believes he or she has made 4 payments since the filing of the bankruptcy petition, but the lender only shows 1 payment has been made.  If a debtor receives a motion for relief from stay it is important that he or she contact his or her attorney to discuss the motion.  At my office I will typically send a debtor notice of the filing of a motion for relief from stay when I know they would like to keep their house and ask them to make an appointment to meet with me to discuss it.

             Filing a bankruptcy is generally a very stressful time for clients and the receipt of a Motion to Lift the Automatic Stay is no exception.  However, in my opinion, that stress can be greatly reduced by having a knowledgable bankruptcy attorney.  Live in Indianapolis, Carmel, Zionsville, Fishers, Noblesville, or any other area in central Indiana and considering bankruptcy?  I am happy to meet with you to discuss your options including both bankruptcy and non-bankruptcy options.  To schedule a free initial bankruptcy consultation call (317) 575-8222 or click here.

Halcomb Singler, LLP, is a debt relief agency.  It helps people file for bankruptcy under the bankruptcy code.  No attorney-client relationship with the firm of Halcomb Singler, LLP, is created through this blog. Also, please note that Erika Singler is an attorney licensed in Indiana and does not seek to practice law in any jurisdiction in which they are not properly authorized to do so.  The information contained in this blog is general in nature and should not be relied upon for the circumstances of any individual(s) or businesses.