The Four Forms of Relief from an Automatic Stay

In bankruptcy proceedings, the first action to go into effect following filing is the automatic stay.  The automatic stay protects the debtor from the collection attempts of his creditor.

Purpose of the Automatic Stay

Bankruptcy law was established to give those filing an opportunity to start again. Those who file bankruptcy generally have reached a point where they can no longer make payments to their creditors, have fallen behind in payments and are possibly facing foreclosure.  By statute, the individual filing for bankruptcy benefits from an automatic stay, which immediately prohibits creditors from attempting to collect the money they are owed.  They cannot file suit, make collection calls, garnish wages, or attempt to foreclose. This gives the debtor time to collect funds which will be used later in the proceedings.  For creditors, however, this can be frustrating and even financially debilitating.

Forms of Relief from Automatic Stay

Creditors who are kept from legally pursuing collection activities against a debtor due to an automatic stay actually have four re-courses which can provide them relief. These four options are: termination, annulment, modification, and conditioning.  The court decides which of these forms is most appropriate based on the grounds for relief that are filed.

Termination of the stay ends the stay and allows the creditor to proceed with legal actions against the debtor. This only goes into effect once the termination order is given, meaning any actions taken against the debtor during the time which the stay was in place, are of no effect and must be re-initiated by the creditor.

Unlike termination, annulment of a stay means the stay is nonexistent.  This allows creditors to enforce actions they took during the stay. Annulment of a stay is a rare situation because it usually isn't granted unless the debtor has demonstrated bad faith while the creditor, on the other hand, acted in good faith and has in no way violated the stay.

In the case of a modification of a stay, the stay is modified such that the creditor is allowed to pursue certain actions and not others. For example, if the creditor is seeking legal action against the debtor, he may be allowed to proceed and receive the judgment against the debtor, however, he will be prevented from collecting against the judgment until the bankruptcy proceedings have either dismissed the case or failed to discharge the debt.

Finally, conditioning of a stay is when conditions imposed on the debtor or trustee which must be met in order to retain the enforcement of the stay. For example, in the situation where the creditor's property is losing value during the stay, the court may impose the condition that unless the trustee and/or debtor protect the creditor's property from devaluation, the creditor will be granted relief from the stay.

Seek Professional Advice

Those faced with the need for relief from a stay may wish to contact a bankruptcy attorney.  They can offer professional input regarding all your rights and options in securing relief from an automatic stay.