By Ryan C. Wood
There are many reasons people may want to file for bankruptcy: stopping a pending foreclosure, stopping a wage garnishment, stopping a lawsuit, or trying to get out from all their crushing debts to obtain a fresh start to name just a few. There are many more reasons than these as to why people file for bankruptcy. There is one powerful tool in the bankruptcy arsenal that accomplishes all of the actions named above: the automatic stay. The automatic stay is what stops a creditor from collecting from you, contacting you, continuing lawsuits or wage garnishments against you. The automatic stay freezes all collection activity against you as soon as your bankruptcy lawyer files your petition for bankruptcy relief. Obviously your creditors are not the biggest fan of the automatic stay if they are trying to collect from you. Their objective is to lift the automatic stay so they can continue their collection activity. How do they get the automatic stay lifted as to their debt?
Under 11 U.S.C. §362(d)(1) of the Bankruptcy Code, one of the ways in which a creditor can obtain a relief from stay order from the bankruptcy court is “for cause, including the lack of adequate protection of an interest in property…” What is considered “cause” for the judge to grant relief from stay to the creditor? It would be easier if Congress set out an exact definition on what is considered “cause” to lift the automatic stay, but since Congress did not do that, “cause” is determined on a case-by-case basis. See Delaney-Morin v. Day (In re Delaney-Morin), 304 B.R. 365, 369 (9th Cir. BAP 2003). Everything depends on the circumstances. The party seeking to preserve the automatic stay has the burden of proof. See Ellis v. Parr (In re Ellis), 60 B.R. 432, 435 (9th Cir. BAP 1985).
One of the circumstances that judges grant relief from stay for “cause” is the lack of proof of current insurance on the property. Proof of insurance is normally under the terms of a deed of trust. Failure to maintain insurance is cause to lift the automatic stay because it does not provide the creditor with adequate protection of its collateral. If anything happens to the property there would be a huge decline in property value and the creditor would lose its investment if no insurance is available to insure the property.
Another circumstance that judges lift the automatic stay for “cause” is lack of post-petition payments to the secured creditor. Your pre-petition arrears may be paid through a Chapter 13 bankruptcy plan your bankruptcy attorney drafts and files, but your post-petition payments need to be paid to your creditor once the bankruptcy case is filed. Lack of payment means that your creditor is not adequately protected against a default and they can have the stay lifted so they can continue with foreclosure proceedings to get the property back.
Most of the relief from stay actions are normally filed by secured creditors because they have an interest in the collateral (your car, your house, etc.). You do not have to worry about your unsecured creditors filing motions for relief from stay actions against you for your credit card debts or personal loans as these creditors do not have any cause to lift the automatic stay. One exception is your landlord. If you owe money to your landlord, your landlord may file a motion to lift the automatic stay against you to continue their unlawful detainer action if you are not paying rent to them. Another reason a motion to lift the automatic stay may be filed is to continue a lawsuit in another jurisdiction (for example, a state court) for actions not related to collection of debt. This could be filed by either you or your creditor.
If you have a motion for relief from stay action filed against you, it is highly advisable to seek the advice of an experienced attorney. Since the ability to obtain a relief from stay order from the judge is on a case-by-case basis, you should consult with a lawyer to see if your property may be in jeopardy.