Lifting the Automatic Bankruptcy Stay and Protecting Rights of Creditors and Other Parties

The automatic stay is a bankruptcy law that immediately goes into effect when a debtor files a petition for bankruptcy. The stay freezes all debt collection activities and legal proceedings against the debtor while debt matters are resolved. This means that creditors and parties who have sued the debtor may not continue debt collection efforts or legal action against a debtor while the stay is in effect.

Good Cause to Lift Stay

However, the bankruptcy court will permit a creditor or other party to proceed with enforcement of their claims against the debtor if that creditor or party provides “good cause,” or a good reason, to lift or remove the stay. Such reasons include:

• The creditor’s interest is at risk because there is no insurance on the collateral or the debtor is not likely to make future payments.
• The debtor has no interest in the property the creditor wants to seize. For example, if the debtor has vacated a home with a mortgage, thereby indicating no intention to save it in bankruptcy, the court may remove the automatic stay to permit the creditor to foreclose and seize the property.
• There is no reason related to the bankruptcy case to maintain the stay. The automatic stay stops all legal proceedings against a bankruptcy debtor. A court can remove the stay to allow certain wholly unrelated litigation to move forward.
• If the debtor filed for bankruptcy in bad faith, the creditor may request the court to lift the automatic stay to allow collection efforts to continue.
• The automatic stay unduly burdens a creditor or other parties interested in the debtor’s property.

Eligibility to Lift Stay

Creditors and other parties can file a “Motion to Lift Automatic Stay” if the automatic stay has harmed or will harm their property interests, contractual rights or legal claims. Motions to lift are typically filed by:

•    Landlords
•    Secured creditors, such as mortgage lenders
•    Co-owners and consignors of property
•    Parties with non-bankruptcy lawsuits against the debtor

To support a motion to lift, a creditor must prove that it possesses a legal right to request relief from the stay. This means providing proof of the existence of a debt and an interest in property as collateral. Some creditors cannot meet this requirement, such as mortgage lenders that cannot find and produce necessary loan documents.

Procedure to Lift Stay

The process begins by the creditor or other party filing a “Motion to Lift Automatic Stay,” stating facts that establish good cause to lift the stay. The bankruptcy trustee and the debtor are served with copies of the motion. The debtor generally has 14 days to object to the motion. If the debtor does not respond, the court may lift the stay. If an objection is filed, the creditor must request the court to schedule a hearing on the motion. The hearing may not occur for many weeks. Therefore, the sooner a creditor or other interested party files the motion, the sooner the automatic stay can be lifted and collection activity or legal action can resume.

Consult the Tampa Creditor Attorneys at Lieser Skaff Alexander

Our firm provides aggressive, cost effective representation of creditors and other parties seeking to lift the automatic stay in Tampa bankruptcy cases. We encourage mortgage and finance companies and lessors to contact us to learn how to protect their property and rights in bankruptcy cases.