Losing the Automatic Stay in Bankruptcy

When you file a petition in bankruptcy, whether in Chapter 7 or Chapter 13, (and if you are not disqualified as a “repeat filer”) you are immediately entitled to the protection of the Automatic Stay. The Automatic Stay is contained in the US Bankruptcy Code, and prohibits creditors from writing, calling, suing or continuing suits or collection action, or taking any other action (outside of the bankruptcy proceeding) to collect a debt. The automatic stay remains in effect until your bankruptcy discharge, with some exceptions. Here are the ways you can lose the protection of the automatic stay.

A Creditor Successfully Asks the Court to Remove the Stay

A creditor can always file a motion the bankruptcy court to lift the automatic stay “for cause”. The most common reasons are a default or arrears in payment. Also, if the lender can show that it is not “adequately protected” by its collateral, that may suffice. The most common circumstance for individual debtors is a failure to maintain insurance on a vehicle or other property where this is required under the loan documents.

If the Court vacates or “lifts’ the automatic stay, the creditor is then free to repossess or foreclose on the property and otherwise protect its interest. However, the creditor is generally not permitted to sue a debtor personally (except as a defendant in a mortgage foreclosure or similar legal action aimed at recovery of collateral). It can only proceed to recover its property.

Filing a Repeat Bankruptcy Within a Year of a Prior Petition

If you had a prior bankruptcy proceeding that was dismissed (other than because of disqualification under the Means Test or “substantial abuse “ provisions of Code section 707(b)) within a year of the current filing the automatic stay only lasts for 30 days. To keep it in place for longer than that, you must file a motion to extend it, and that motion needs to be heard and granted within 30 days. In other words, if you are in this situation, you and your attorney had better work fast.

If you had more than one such case dismissed in the preceding year, or if the dismissal was because you did not comply with a court order or the terms of a confirmed Chapter 13 plan, it is even tougher to get the protection of the automatic stay. First, the stay does not go into effect at all until the court orders it. Furthermore, the burden is on you to show that court that you are now acting in good faith deserve the automatic stay as being in the best interest of creditors. The bankruptcy court may extend the period of the stay under limited conditions, if it determines that the current filing is in good faith.

Missing Deadlines for Filing Statement of Intention

If you have secured debt in the bankruptcy, you must prepare and present to creditors a Statement of Intention, which advises creditors what you plan to do with the collateral. You must file the Statement of Intention within 30 days of filing your bankruptcy petition. If you do not, the automatic stay may be lifted.

The Automatic Stay is one of the most important and fundamental protections that a bankruptcy affords. There are many other situations where it may be at risk. Protecting yourself and the protection of the Automatic Stay requires the advice and representation of a qualified, experienced and diligent attorney.

Contact Neuner & Ventura, LLP

We understand the stress, anxiety and confusion that can be associated with a potential bankruptcy filing. We offer a free initial consultation to every client. For an appointment, call Neuner & Ventura at 856-596-2828 or send us an e-mail. We do, however, reserve the right to charge a fee to review any work done by another attorney. Evening and weekend appointments are available upon request.

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