When you file for Chapter 7 bankruptcy in New York, one of the biggest advantages is that the automatic stay protects you from most creditor actions such as collection agency calls, wage garnishments, lawsuits, foreclosures, and repossessions.

The automatic stay is an injunction issued by the bankruptcy court. Once creditors are notified, even a lawsuit in progress has to stop, and cannot proceed unless it obtains permission from the court. If they violate the say, then either deliberately or because they haven’t received notice of the bankruptcy yet, 11 U.S. Code 362(k) provides for damages, attorney’s fees, and even punitive damages if the violation is willful.

While most creditors will not try to overcome the automatic stay, others, such as mortgage lenders, may file motions for relief that allow them to proceed with the collection action despite the fact that you have declared bankruptcy. Below are some examples of situations where secured creditors may seek and receive relief from the automatic stay.

  • You have defaulted on the monthly payments, such as your mortgage or car loan payments.
  • Your landlord wants to evict you and not wait until your case is over. The court might lift the stay if you are using illegal drugs on the property or continuing not to pay your rent.
  • If the case against you is not allowed to proceed, then it could cause significant hardship. For example, the creditor has spent a significant amount of time and money trying to collect a legitimate debt from you.
  • The property used to secure the debt is highly valuable, but you haven’t insured it or you are otherwise subjecting it to an unacceptable level of risk.
  • The property is highly valuable but quickly depreciating, and the creditor believes that you won’t reaffirm the debt or redeem or surrender the property.

If the bankruptcy court grants a creditor’s motion to lift the automatic stay, then they can proceed with the foreclosure or applicable collection action. For example, if the bank was in the process of foreclosing on your home when you filed for Chapter 7 bankruptcy and the stay is lifted, they can now go ahead with a foreclosure sale.

This is not to say that any of your creditors will definitely succeed in collecting their debt by lifting the automatic stay. They simply have the right to seek relief under the U.S. Bankruptcy Code. If you have questions or concerns about the possibility of a creditor trying to overcome the stay, then discuss them with your New York bankruptcy attorney. Your attorney will let you know what to expect and how to respond if a creditor claim overcomes your Chapter 7 filing.

Jayson Lutzky is a Bronx, New York personal bankruptcy lawyer. Contact his office at 718-514-6619 to set up an in-office consultation. Mr. Lutzky has over 36 years of legal experience and has helped many highly satisfied clients regain their financial freedom. Mr. Lutzky can help assess your financial situation and determine if bankruptcy is right for you. Visit www.MyNewYorkCityLawyer.com to learn more.