Some people borrow money that they never intend to repay. Others may accrue significant debt in good faith but then face unexpected financial hardship that prevents them from repaying what they owe. Medical emergencies, job loss and divorce are among the most common reasons that individuals may find themselves struggling with high levels of personal debt.
Lenders often need to engage in more assertive collection efforts once borrowers or debtors fall behind on their obligations. Collection calls, warning letters and debt-related litigation are all ways for creditors to push debtors into financial compliance.
If an individual debtor files for personal bankruptcy, creditors may assume that they are out of options. As soon as the automatic stay takes effect, they typically need to halt collection at first and dismiss any pending lawsuits. However, an attorney could potentially help creditors pursue relief from the automatic stay.
The courts can lift an automatic stay
The automatic stay exists to protect people and businesses from continued collection efforts while a bankruptcy is underway. However, the courts may agree to lift the automatic stay for specific creditors when there is evidence of fraud or other forms of financial misconduct.
Creditors who believe that a debtor may have borrowed without a good faith intent to repay what they owe are among those who may be eligible to ask the courts to lift the automatic stay. An attorney can file a petition with the courts requesting adversary proceedings.
This is essentially a separate lawsuit related to a pending bankruptcy case. The creditor’s lawyer can then present evidence to the courts about a debtor’s prior attempts to avoid responsibility or other signs of financial misconduct. If the courts agree that the debtor engaged in inappropriate behavior, they may lift the automatic stay for the creditor that initiated the adversary proceedings, thereby allowing for the continuation of collection efforts.
There may be other sources of relief available as well, such as excluding the debt from the discharge granted, which is partially why consulting with an attorney familiar with creditor rights during bankruptcy is of the utmost importance. Responding assertively to a debtor’s bankruptcy can help lenders avoid substantial losses triggered by the attempted discharge of a debt.