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Creditor motions for relief from an automatic stay

On Behalf of | Nov 11, 2022 | Blog

 

When a debtor files bankruptcy, a special action called an automatic stay can be used to prevent creditors from pursuing collection actions against the debtor or from suing the debtor to collect their debts. There are, however, exceptions to an automatic stay that creditors can also file to pursue remedies available in state courts, such as garnishment, foreclosure, and repossession of personal property belonging to the debtor.

A creditor may seek relief from the automatic stay in two ways, by filing a motion either under Federal Rule of Bankruptcy Procedure 4007(a) or Federal Rule of Bankruptcy Procedure 4007(b). The purpose of obtaining relief from an automatic stay is to allow creditors to pursue their state court remedies with respect to property that serves as security for the debt owed to them.

When does a court grant an automatic stay?

The automatic stay stops all collection actions while a case is pending in bankruptcy court. Once filed, most creditors must stop attempts to collect what they are owed. The automatic stay also stops most foreclosure and eviction proceedings. However, this protection is not indefinite. There are times when a creditor may ask the bankruptcy court to lift or relieve the stay so that they can take certain actions against a debtor before or after a discharge hearing.

When can a creditor file a motion for relief from the automatic stay?

In order to file a motion for relief from the automatic stay, a creditor must show that:

  • They have an interest in property subject to the automatic stay
  • Their interest is not adequately protected by another provision of law
  • Granting relief would not be detrimental to creditors

A creditor may request relief from the automatic stay by filing a Motion for Relief with the bankruptcy court, explaining why they are entitled to relief. The court will then decide whether to grant or deny the motion.

A creditor may file a motion to redeem collateral with respect to real property if they have an interest in that property and it is within 60 days of foreclosure sale or eviction. A creditor may file a motion to void a transfer if they believe that transferring assets was done without their consent, under duress, by fraud, or illegally.

 

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