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Can creditors ask the Bankruptcy Court to lift the Automatic Stay?

The short answer is, “Yes, but…”

The automatic stay is one of the most important protections bankruptcy petitioners receive, so in practice, very few creditors can actually successfully argue a “motion for relief from stay,” also called a, “motion to lift the stay.”

Unsecured creditors can almost never convince the bankruptcy court to lift the stay, although one exception is landlords who are not being paid. Secured creditors in a Chapter 7 will also almost never file a motion to lift the stay unless they are not being paid, and in a Chapter 13 case, secured creditors will almost never win the motion unless the debtor is not making post-petition payments.

Still, it’s fair to say the automatic stay is not set in stone. By using legal channels rather than breaching the stay, creditors can gain relief from it. After the creditor files the motion, the bankruptcy court will set a hearing date where the parties will argue it. If you are concerned about the automatic stay being lifted, here are some things to know:

Lifting the stay requires the creditor to show “cause.” When the creditor does so, the burden shifts to the debtor to prove to the court that the motion should be denied. While showing “cause” is important, the bankruptcy code does not explicitly define what constitutes it. Bankruptcy courts are allowed to decide on a case-by-case basis because they are courts of equity, which means they can adjudicate issues based on circumstances and fairness rather than black letter law. This doesn’t mean courts are flying blind or decide cause arbitrarily. They can use a balancing test to decide whether the creditor has shown that the automatic stay should be lifted.

The criteria are:

  • Whether prejudice will be caused to the debtor
  • Whether hardship to the creditor for not lifting the stay outweighs hardship to the debtor
  • Whether the creditor has a reasonable probability of prevailing on the merits

Finally, the bankruptcy court can also use general policy guidelines to decide whether to lift the stay.

Motions for relief from stay are rare as the exceptions listed at the beginning indicate, and creditors are barred from filing them in some situations, such as in a Chapter 13 proceeding in which the petitioner chooses to keep his or her home or if you have been making regular mortgage payments. In other instances, it’s in the creditor’s interest to wait out the bankruptcy case, and rather than violate the stay, they will foreclose on a debtor’s home after the conclusion of his or her Chapter 7 bankruptcy.

Thus, it is possible that one of your creditors will attempt to use legal processes to lift the automatic stay against you, or it may want to wait until after your bankruptcy to foreclose on you. These are compelling reasons to ensure you have an experienced New York bankruptcy attorney handling your case.

For more questions about the automatic stay, attempts to lift it and effective strategies for dealing with foreclosure, please feel free to contact experienced Bankruptcy Automatic Stay Bruce Weiner for a free initial consultation.

Rosenberg, Musso & Weiner, L.L.P
26 Court St # 2211
Brooklyn, NY 11242, USA

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