When you file for bankruptcy, the court grants an "automatic stay" that prevents creditors from pursuing you during the course of your bankruptcy case. Typical creditor actions, such as phone calls, letters and lawsuits, all must cease upon the granting of the automatic stay. However, creditors have the right to appeal the court for relief from the automatic stay. In certain cases, this order for relief may be granted.
Order for Relief Process
Even if a creditor has good cause to ask for relief, it can't simply ignore the provisions of the automatic stay. To request relief, a creditor must file a motion with the court. You'll receive notice that a motion has been filed and that a hearing will be held. The burden is on the creditor to demonstrate to the court that relief should be granted.
Reasons to Request Relief
One reason creditors are likely to seek relief is if you are not making payments on secured property. Bankruptcy law requires you to continue making regular payments on secured property or turn it over for liquidation in bankruptcy. If you are financing a car and stop making payments, for example, your creditor will seek to reclaim that property by getting relief from the automatic stay. Similarly, if you stop paying your mortgage, a creditor likely to seek relief so it may continue foreclosure proceedings. A creditor also may seek relief if you aren't adequately protecting secured property, such as a car, or if it can demonstrate that you are unlikely to make future payments.
Certain unsecured creditors also may seek relief from the automatic stay, typically those due criminal restitution, child support or spousal support payments. These types of debts are not dischargeable in bankruptcy, so those creditors may have the right to receive relief. Credit card companies usually are out of luck, although they may win relief if they can demonstrate that you made fraudulent charges immediately before you filed for bankruptcy.
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Consequences of Relief
If a creditor gets relief from the automatic stay, it's as if the stay doesn't exist for that creditor. That means the creditor is entitled to pursue you for the money you owe, by any legal means necessary. This can include mailings and phone calls, assignment of your accounts to collection agencies, repossession efforts and lawsuits. If a creditor goes to court and gets a judgment against you, your bankruptcy no longer provides you any defense. Essentially, you'll have no options except to either pay off that debt or surrender property to satisfy payment.