Losing the Automatic Stay for Repeat Bankruptcy Filings


How Can You Lose Your Automatic Stay Protection Under The Bankruptcy Laws?

can you lose the automatic stay

When you file for personal bankruptcy or business bankruptcy, an automatic stay takes effect immediately, restricting your debt collectors from harassing phone calls, writing, or trying to collect debts from you. The automatic stay is in effect throughout your bankruptcy proceeding. However, can you lose the automatic stay in a bankruptcy filing?

  • What Is An “Automatic Stay,” And How Does It Work?
  • Who Files Multiple Bankruptcy Petitions In A Single Year?
  • Do Previous Bankruptcy Cases Have An Impact On The Automatic Stay?
  • Can The Duration Of The Automatic Stay Be Extended?
  • How Can I Make A Request For An Automatic Stay?
  • Bad-Faith: What Qualifies As Such?
  • Learn How To File For Bankruptcy Protection

Multiple bankruptcies in one single year indicate that the bankruptcy process is being abused. If you are filing bankruptcy for the 2nd or 3rd time this year, you need to prove that you are indeed filing in earnest if you don’t want to lose your automatic stay.

Our Portland Oregon bankruptcy attorney can help you understand more about an automatic stay’s scope! 

What Is An “Automatic Stay,” And How Does It Work?

In most cases, an “automatic stay” provided by the United States Bankruptcy Code 11 U.S.C. 362 stops the continuation of most collection operations or is contemplated by a creditor against the debtor. However, if a debtor has had a previous case or cases dismissed within one year of filing the current case, the stay may not be enforced, or may only be effective for a limited length of time, such as 30 days, unless the debtor takes action to reimpose or extend the stay. A lender who wishes to take action against the debtor or the debtor’s property while the stay is in place must obtain permission from the court by obtaining relief from the automatic stay. Otherwise, the debtor risks the possibility of being sued for damages, which would include costs and attorney fees, and, in applicable circumstances, punitive damages. Creditors who are unsure about their rights or whether the automatic stay applies to them should obtain legal help from reliable bankruptcy attorneys in Portland, Oregon.

Who Files Multiple Bankruptcies In A Single Year?

If you’re wondering who files multiple bankruptcy cases in a year, you should know that it occurs more often than you might expect. It generally happens in one of two ways:

  1. A person files for bankruptcy without the assistance of a bankruptcy lawyer, becomes overwhelmed by bankruptcy procedure, and fails to follow through, resulting in the case being dismissed; or
  2. A person hires a bankruptcy attorney, signs some bankruptcy forms, and the case is filed, only to be dismissed because he or she (or, the attorney) does not follow through.

In both instances, they’ve forgotten about it eleven months later. Or they don’t believe it’s important.

The goal of bankruptcy laws is to prevent “serial bankruptcy filers,” a relatively tiny percentage of people who file multiple bankruptcy cases, presumably abusing the bankruptcy process, usually to continually delay a foreclosure or other creditor action. However, in cases such as the ones described above, these bankruptcy rules have the potential to severely punish innocent people.

You can avoid this from happening to you by doing the following:

  1. Carefully think if you have filed a prior bankruptcy case in the last year, and
  2. Notify your bankruptcy lawyer if there’s even a remote possibility that you did.

If this is the case, the bankruptcy court may be convinced to start or keep your automatic stay, but only if your attorney is aware of the problem and assesses if your case qualifies. 

Do Prior Bankruptcy Cases Have An Impact On Your Automatic Stay?

The length of your automatic stay is determined by how often the debtor has filed bankruptcy in the previous year:

  • 30-day stay 

The stay will be in effect for 30 days if another bankruptcy case has been filed by the debtor during the prior year.

  • No stay 

The court order will not impose an automatic stay if 2 or more bankruptcy cases have been filed by the debtor in the previous year.

Nonetheless, the debtor may petition the court judge to enforce or extend the stay outside the 30-day timeframe. If the motion is successful, it will show that the borrower is not abusing the system.

Can The Duration Of An Automatic Stay Be Extended?

You must do the following steps before the court can grant your automatic stay request:

  • Prepare your motion in which you explain why your bankruptcy filing is not a fraudulent misrepresentation.
  • Set the date of the bankruptcy hearing no later than 30 days following the date of your filing bankruptcy.
  • As soon as possible, serve your motion on the lenders, trustee, and the United States Trustee.

If you are pressed for time, your attorney may well be able to get an “Order Shortening Time,” that allows you to give less notice than is normally necessary.

How Can I Make A Request For An Automatic Stay?

When deciding whether to approve or prolong the stay in a bankruptcy, the court will first presume that the bankruptcy was filed in bad faith. In  order to win, you must convince the court that the case was dismissed for reasons other than your own fault.

For example, the court rejected your bankruptcy petition because you did not amend your petition for bankruptcy just after the bankruptcy trustee realized that the name on your petition did not match the name on your valid identification. You’d probably win the motion if you updated the information but your attorney failed to file it. The failure was not caused by you. However, if you failed to do the amendment while representing yourself, the court might scrutinize your reasons, and he might suspect that identity theft was committed. You will not be able to fulfill the good-faith criterion.

A court judge might be sympathetic to your case if your dismissal was the result of an uncontrollable event. You’ll want to demonstrate in your motion that you missed filing paperwork or showing up at the 341 meeting of creditors due to an unanticipated circumstance, such as a severe sickness or natural disaster.

Another example is, supposing the court rejected your case because you failed to attend the 341 creditors’ meeting. You add a declaration from your doctor with your motion, stating that you were brought to the emergency room the night before and remained in the hospital for a lengthy amount of time. The court would most likely think you had no means of informing the trustee in bankruptcy that you were unable to attend and approve your motion. If, on the other hand, you had a conflict of schedule or just forgot, you’d be less likely to succeed.

Natural Disasters Have Their Own Special Rules

Natural disasters have their own set of rules. If you are unable to provide the trustee with 521 papers due to a flood, fire, or storm, or if you are unable to attend the 341 meeting of creditors due to impassable roads, alert the trustee. The trustee is required to make accommodations as a result of natural disasters, but cannot do so unless the trustee is aware of the problem.

What Exactly Will Constitute “Bad Faith”?

The judge will not grant your motion if your filing behavior seems to be an effort to exploit the bankruptcy system. Debtors who use repeated filings to frustrate valid creditor actions are frowned upon by the court.

Declaring bankruptcy, for example, effectively stops foreclosure, eviction, and other forms of collector actions that may cause undue hardship. Some filers have been known to repeatedly file and dismiss bankruptcy cases for the sole purpose of delaying such proceedings. This is not a correct use of the bankruptcy system, and the court watches out for cases like this.

Here’s an example of a bad-faith case.

In a prior bankruptcy case, a creditor filed a motion to lift the automatic stay in order to continue with a foreclosure, repossession, lawsuit, or eviction, but the debtor dismissed the case before the judge could consider the creditor’s motion. When the foreclosure or other action is about to begin anew, the debtor files a new case to halt it. Delays can cause serious harm to a creditor, particularly if the debtor is utilizing additional delaying tactics in between bankruptcy filings.

Learn How To File For Bankruptcy Protection

Bankruptcy law firm Michael D. O’Brien & Associates, P.C. has been providing affordable bankruptcy protection and asset protection strategies to people and families who are having debt problems in Bend, Clackamas, Portland, Tigard, and surrounding Oregon areas for more than 20 years. Talk to one of our bankruptcy attorneys to help you get a fresh start. 

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FACING COMPLEX DEBT PROBLEMS?

Whether you're dealing with overwhelming debt, stopping foreclosure or repossession proceedings, or looking for a way to protect your assets, our Portland bankruptcy attorneys are here to help you overcome your financial hurdles!

Please be aware that submission of this no-obligation form does not establish an attorney-client relationship. By filling out the form, you agree to receiving emails from our firm regarding your case evaluation and other helpful resources.