One of the first things that happens when an individual files for bankruptcy is the automatic stay going into place to protect the debtor from collection efforts. The automatic stay is likely frustrating to creditors, but do they have the right to object to it? To learn more about the process, continue reading and reach out to an experienced Bergen County bankruptcy lawyer at Boyd & Squitieri to set up your free consultation today.
What is an Automatic Stay?
An automatic stay is a law in bankruptcy that issues a temporary pause on collection efforts against a debtor who has filed for bankruptcy. Creditors generally use varying actions to collect debts owed by the debtor, including the following.
- Phone calls
- Lawsuits
- Garnishing wages
- Asset seizure
- Repossession of property
- Liens
- Foreclosure proceedings
- Eviction actions
All of these actions are prohibited under the automatic stay. This pause allows the debtor time to figure out their financial situation, create a repayment plan, liquidate assets, and get their finances in order in preparation for bankruptcy.
The automatic stay goes into place immediately once the debtor files for bankruptcy. But what about the creditors’ rights?
Can Creditors Object to the Automatic Stay?
Yes, creditors can object to the automatic stay after the debtor files for bankruptcy. First, the automatic stay does not apply to all collection actions. For example, the debtor’s ex-spouse is still permitted to attempt to collect alimony or child support payments. Additionally, any debt incurred after the bankruptcy filing date can be collected despite the automatic stay, as it is not included in the bankruptcy case.
Besides expenses that are not protected by the automatic stay, certain individuals may be permitted to continue their pursuits depending on the details of the situation. Creditors can object by filing a Motion for Relief from Stay.
What is a Motion for Relief from Stay?
Section 362 of the Bankruptcy Code outlines a creditor’s right to file a Motion for Relief from Stay. The motion asks the judge to terminate the stay and allow the creditor to take action against the debtor and their property. Some valid grounds for relief include the following.
- The debtor does not have equity in the property
- The property is not necessary to effectively reorganize debts
- The debtor filed for bankruptcy in bad faith
- The debtor is not personally liable for the debt, or there are co-debtors
When a creditor wants to object to the stay, they must file the motion for relief with the bankruptcy court and clearly state the reason for the request, supported by ample evidence. The debtor will have the chance to oppose the motion and provide their own argument and evidence. To determine whether or not to lift the stay, the court will consider the debtor’s interest in obtaining relief from debts versus the creditor’s right to collect the debt.
For more information and legal advice during bankruptcy proceedings, reach out to an experienced attorney today.