• 22
  • April
    2011

Earlier this week, we wrote about the increase of strategic mortgage defaults that is taking place in Tennessee and throughout the country. Often, homeowners walk away from their mortgage simply because they feel that they have no other options. However, there is a form of relief that is built into bankruptcy. An automatic stay acts like an umbrella to protect those who file for bankruptcy protection. A stay takes effect at the moment of filing, and is usually not removed without very good reason.

When a debtor files for bankruptcy, the court immediately orders that all creditors stop their attempts to collect on the debtor's bills. This automatic stay is powerful enough to stop lawsuits, repossessions, liens and wage garnishments. A stay prevents bank foreclosures, landlord evictions, utility shutdowns, harassing collection calls, and transfers creditors' requests for a debtor's money to the court system.

Creditors may request that the court lift a stay; however, a court will only do so if the creditor proves just cause. Relief may be granted if a creditor can prove that it is inadequately protected and will suffer a jeopardizing loss of interest in the debtor's property.

However, the process of seeking a stay reversal may be more costly and time-consuming than it is worth to a creditor. Even when a federal judge lifts a stay, there are often other state law obstacles that block a stay reversal.

The only situation in which a debtor may not qualify for an automatic stay is when he or she has had a previous bankruptcy case dismissed. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 limits automatic stays to 30 days if a debtor's bankruptcy has been denied at least once in the previous 12 months. In addition, if a debtor has received a denial more than once in the same 12-month period, he or she may not receive any stay. The debtor may then petition the court for a stay.

Source: Bankruptcy Home, "How Good is an Automatic Stay?" 14 April 2011