When a debtor files Chapter 7 or Chapter 13 bankruptcy , he/she will receive the protection of an automatic stay. The automatic stay prevents creditors from taking collection actions against the debtor in bankruptcy and also forbids the creditor from calling, writing, issuing a wage garnishment order, seizing the debtor's bank account or assets, filing a lawsuit or filing foreclosure on the debtor's home. However, there are circumstances where a creditor will seek relief from the automatic stay.
- A creditor will seek relief from an automatic stay in bankruptcy if the debtor does not have "sufficient" equity in the secured property or if the secured property has not been properly insured by the debtor. This most often happens in the case of vehicles and real estate property. For example, if you have a financed vehicle during bankruptcy and you fail to insure the vehicle, the creditor may seek relief from the automatic stay because of your lack of insurance on the vehicle.
- A creditor may seek relief from the automatic stay in bankruptcy if they believe that another court is more equipped to handle the legal issues in the case. This is most common when a divorce proceeding is taking place during bankruptcy.
- A creditor may seek relief from the automatic stay specifically in Chapter 13 bankruptcy before confirmation if they believe that they will not be given sufficient payment on a debt.
If a creditor is given relief from automatic stay, they will be able to continue their collections efforts against the debtor as if he/she never field bankruptcy. However, it's important to understand that just because a creditor seeks relief from the automatic stay does not mean the bankruptcy judge will grant that relief. They must prove that relief from the automatic stay is warranted. If a creditor is seeking relief from the automatic stay during your bankruptcy case work with your bankruptcy attorney to challenge the creditor's motion for relief.