Challenges to the Automatic Stay
Challenges to the Automatic Stay
There are times during a bankruptcy proceeding where a creditor will decide to challenge the automatic stay. The purpose of challenging the automatic stay is to allow the creditor to move forward with any legal action against you for the debt that you owe them. A preliminary hearing on the request to lift the stay is held within 30 days, followed by a final hearing within 30 days after the preliminary hearing.
In order to be successful in having the automatic stay lifted, the company or party filing a motion to lift the stay must have the legal right (often referred to as “standing”) to ask the court to lift the stay. For example, as it has become commonplace for mortgages to be bought and sold, knowing who actually owns the loan has become more difficult. Often a mortgage servicing company is the only connection for someone who has taken out a mortgage on a house. It might be possible to challenge a motion by a mortgage servicing company to lift the automatic stay because that company does not actually own the mortgage and as such, does not have the right to bring the motion to lift the automatic stay.
Prior Bankruptcies and the Automatic Stay
Prior bankruptcy filings can affect your ability to file again and use the automatic stay. The changes made to the bankruptcy code in 2005 outline the impact of prior bankruptcy filings and the automatic stay. If you have filed bankruptcy within the last 180 days and the case was dismissed for “willful” failure to follow court orders or to appear before the court, or requested and received a voluntary dismissal after a creditor filed to have the automatic stay lifted, you may not file another bankruptcy petition. The purpose of this change was to keep debtors from abusing the automatic stay provision provided when you file bankruptcy.
Under What Kinds of Circumstances Might the Stay be Lifted?
It is possible for a creditor to get a stay lifted under certain circumstances. One possibility has to do with a creditor who claims that they do not have adequate protection for the money they are owed in a secured property. For example, if you owe money on a car and the car is going down in value, so that it is worth less than what you owe, the creditor can request that the stay be lifted.
Under chapter 13, you may be able to make periodic payments (called adequate protection payments) so that the amount you owe stays above what the value of the car is. This would protect the creditor’s interest in the property and allow you to keep the property safe from repossession. There are other specific circumstances when the automatic stay might be lifted that are specific to certain cases. This example is one of the most common.
Property in the Hands of Third Parties
In addition to the automatic stay, once you file bankruptcy, any of your property that you have an “interest” in, or some legal right of ownership to, that is in someone else’s possession must be turned over to the trustee. The other entity must either turn over the property to the trustee or give the trustee the value of the property. This part of the bankruptcy law is helpful for us to be able to regain a repossessed car or any property seized prior to filing bankruptcy. It is important if this has happened, for example with a car. We must act quickly to overturn the repossession of the car. We only have 10 days from the date we file bankruptcy to file a motion to get your car back.
As a general strategy, we encourage clients who are considering filing bankruptcy to take action quickly to file bankruptcy prior to foreclosure or repossession. It is far easier to retain possession over the car than to regain possession after a lender has already taken it.
It should also be noted that the property that is held by someone else (a lender, for example) must be returned to the trustee. Our best strategy is to ensure that as much exempt property as possible is in your possession prior to filing. Once the property is returned to the trustee, it may still take time to get it back to you even if it would be exempt in a chapter 7 case. In a chapter 13 case, we can make a stronger case that you have the right to have property returned to you as the bankruptcy law states that you should remain in possession of all property in the bankruptcy estate. As experienced bankruptcy attorneys we can advise you of the best strategies for protecting property using the automatic stay.