When Can a Creditor Use a Lift Stay Motion?

A lift stay motion, also referred to as a motion for relief from automatic stay, is a crucial tool creditors may use in Chapter 7, 11, or 13 bankruptcy cases. It asks the court for permission to continue certain collections actions against the debtor. In the event a creditor does not obtain a court order to continue collections efforts and resumes them, they could be sanctioned — and any actions taken against the debtor would be void.

What Is a Lift Stay Motion?

A lift stay motion is a request that a creditor can make to lift the automatic stay after a debtor files a petition for bankruptcy. The automatic stay is meant to provide a debtor with immediate relief and the opportunity to reorganize their finances without creditors interfering. It’s an injunction that stops lawsuits, foreclosures, collection activity, and other prohibited actions, including the following:

• Contacting the debtor by phone or mail
• Demanding repayment from the debtor
• Repossessing the debtor’s property
• Continuing a foreclosure
• Garnishing the debtor’s wages

Significantly, there are some situations where a debtor might take wrongful actions in an attempt to prevent a creditor from safeguarding their financial interests — in these cases, a creditor may file a lift stay motion. If the request is granted, it would allow the creditor to take collection action against the debtor that would otherwise be prohibited.

When Can a Creditor Request a Lift Stay Motion?

A lift stay motion is typically used when a creditor believes they need to take action in order to protect an interest they have in the debtor’s property. For instance, a creditor might attempt to lift the automatic stay to proceed with a foreclosure or repossession. They might also file a lift stay motion if there is a risk that collateral would be damaged or destroyed and lose significant value. This motion can be used if the property is not owned directly by the debtor and would not be part of a bankruptcy reorganization.

Importantly, the creditor has the burden of proof to show that there is cause to lift the stay. The creditor must file a written motion with the court explaining why they are requesting that the stay be lifted — and provide a compelling reason. For example, cause to life the stay may include establishing that the creditor’s interest in the debtor’s property is not adequately protected or by showing that the debtor has no equity in the property and the property is not necessary for a reorganization. In addition, a creditor might attempt to lift the automatic stay in cases where the debtor has filed for bankruptcy several times within a short timeframe, indicating abuse of the bankruptcy process.

What Is The Process to Request a Lift Stay Motion?

A lift stay motion is commenced by filing a motion with the court and obtaining a date for a hearing. The motion must be served on all parties in the case. The debtor can then respond to the motion and appear in court for a hearing. They might also engage in negotiations to obtain a resolution with the creditor outside of court.

A debtor will typically raise either procedural or substantive objections to challenge the motion. By raising a procedural objection, a debtor challenges the motion by arguing the creditor did not follow the proper legal procedures. They might assert they were not served properly or the required evidentiary documents were not included with the motion. A substantive objection may be raised in the event a reorganization plan has been confirmed or will be confirmed soon. A debtor might also object on substantive grounds if they have received a loan modification agreement.

What Happens If a Lift Stay Motion Is Denied?

If the court grants the creditor’s motion, their collection efforts can resume against the debtor. However, if the motion is denied, the creditor will not be able to take any collection actions against the debtor. Instead, the automatic stay will remain in place until the bankruptcy case has been dismissed or the debtor obtained a discharge. In some cases, a creditor may file additional lift stay motions during the course of the bankruptcy case if new information arises or a debtor is taking actions that could impact a creditor’s interest in collateral used to secure debts.

Contact an Experienced Minnesota Bankruptcy Court Attorney

If you are facing a bankruptcy matter, it’s vital to consult with a skillful attorney who can assist you with navigating the legal process. At Dave Burns Law Office, I provide experienced counsel for bankruptcy cases to both creditors and debtors. If you would like to discuss a bankruptcy matter, I welcome you to contact me at (612) 677-8351 or by emailing dave@daveburnslaw.com. I represent clients throughout the Twin Cities metro area and am available to meet with clients in both Minneapolis and St. Paul.