When anyone files a bankruptcy, an “Automatic Stay” goes into effect. This stops most types of legal action against or attempts to collect a debt from the debtor (the person or entity that filed the bankruptcy).
A lawsuit cannot be started or continued. Foreclosures on the debtor’s real estate are stopped. Eviction proceedings are generally stopped. Repossession of the Debtor’s car is stopped. If the debtor is going through divorce proceedings, the divorce court can still end the marriage, or award child support or alimony, but cannot divide any of the couple’s property.
RELIEF FROM STAY means permission from the Bankruptcy Court to proceed with some type of collection action outside of Bankruptcy Court.
In a Chapter 13 or Chapter 11 bankruptcy, the debtor often wishes to keep some item of property that a secured creditor is attempting to take back. Typically, a debtor can keep the property if the debtor makes “post-petition” payments (meaning payments that come due after the filing of the bankruptcy petition) and the creditor has “adequate protection” (meaning that there is enough value in the security to cover the amount owed to the creditor.)
If, for example, debtor is behind by 10 mortgage payments at $2,000 per month, and proposes to pay the $20,000 back payments over a period of 5 years, and makes the mortgage payments of $2,000 starting the month after filing bankruptcy, then the court is not likely to grant relief from stay. If, however, the debtor makes no post-petition payments, then the court is likely to grant relief from stay.
Another circumstance where a creditor is likely to request relief from stay is a residential or commercial rental situation, to evict a non-paying tenant.
Similarly, if a debtor is not making monthly payments on an automobile, the secured creditor is likely to request and be granted relief from stay.
Relief from stay is also sometimes requested in personal injury lawsuits. Let’s say, for example that Snithers was involved in an automobile accident in which Jomes was injured. Jomes has filed a lawsuit against Smithers, which is proceeding to trial, when Snithers files a bankruptcy. This stops Jomes’ lawsuit. If Snithers had insurance, then Jomes is likely to request, and be granted, relief from stay in order to attempt to collect from Snithers’ insurance.
If you are faced with circumstances causing you to consider bankruptcy or an alternative, or if someone who owes you money has filed, call now for a free consultation.