Grounds for Relief from Stay

The automatic stay is the protection that goes into effect when an individual files bankruptcy.  It stops all collection activity from creditors, such as calls and letters or attempts at repossession or foreclosure.  However, under certain circumstances, creditors may ask the court to lift the automatic stay to pursue property of the debtor.  This is a brief overview of some of the grounds for relief from stay under the bankruptcy code.

Lack of Payments

Not paying your Chapter 13 plan payments or direct payments to creditors may result in the court lifting the stay.  By not making the payments set forth in your Chapter 13 plan, it may appear that the case was filed in bad faith or without the intention of completing the payment plan.  Not only may this result in the lifting of the stay, but not making plan payments may also cause the case to be dismissed.

Adequate Protection

For the most part, adequate protection refers to insurance coverage on property securing a note.  For example, car or house insurance is often required in a finance contract to protect the creditor’s interest in the property they are financing.  Not carrying required insurance may result in relief from the automatic stay.  The reason for this is that the property may become damaged and without “adequate protection” or insurance coverage, the property losing value would result in the creditor losing money.

Not Necessary for an Effective Reorganization

Another possible reason for the court to lift the bankruptcy protection is for property that is not necessary for an effective reorganization.  For example, if the debtor has an RV, boat, or four-wheeler used for recreational purposes, it may be determined that the debtor does not really need the property.  In bankruptcy, a debtor is not allowed to keep and pay for property that is not necessary to effectively complete their bankruptcy.  Also, money used for recreational purposes may be utilized to pay additional money to creditors, so the trustee and court often requires that unnecessary property be surrendered.

When to Talk to a Lawyer

While many areas of law may be navigated without a lawyer, bankruptcy is considerably more complicated.  Because of the concise nature of the bankruptcy code, it may be necessary to seek the advice of an attorney when declaring insolvency.  This is especially the case if you have non-exempt property or your case is the least bit complicated.