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Can an automatic stay be removed by a creditor?

Creditors may have bankruptcy's stay lifted to resume some collections

One of the biggest advantages to filing bankruptcy - and a source of great relief to those filing - is the ability to stop creditors from pursuing bill collections.

When the U.S. Bankruptcy Court receives a petition, it automatically grants a stay that halts collection efforts, lawsuits and foreclosures until the case is concluded. If creditors continue to contact the debtor with an automatic stay in place, they are breaking the law.

However, there is an important exception to that rule. The law also provides creditors with an option to file a motion for relief from the stay. In effect, it means creditors are asking the court to lift the restraining order against them from collecting on unpaid bills. If granted, they may continue with whatever course of action they were pursuing before the bankruptcy was filed.

Such motions are often filed by lenders of car loans and mortgages who may want to repossess a vehicle or foreclose on a house.

"They are trying to make sure that you keep making any payments that are due and that the property isn't wasting away while they wait out the bankruptcy process," writes California attorney Douglas Jacobs on BankruptcyLawNetwork.com. "You do have to respond to the motion, however. Thus, you get the opportunity to convince the court that the creditor is wrongfully trying to take your property, or you aren't really behind in your payments."

In Chapter 13 cases, people have often filed bankruptcy precisely to catch up on back payments on their mortgage and other possessions. In these cases, responding to the creditor's motion to lift the stay is particularly crucial if the debtor is determined to retain the property.

"The judge will usually deny the motion to lift the stay if you can catch up on the payments you have missed by the time of the hearing," writes Minneapolis Craig Andresen on the website. "You can even ask for extra time to catch up on payments, and the judge may allow this if your request is reasonable."

Even in cases when the judge grants the relief of stay, all is not lost for the debtor. According to the Moran Law Group in California, the relief from stay doesn't transfer ownership of the property to the creditor. The homeowner or car owner retains the property, but must get caught up on back payments and stay current. If they don't, the creditor then can proceed with repossesion or foreclosure proceedings.

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