What Does It Mean if a Bankruptcy Is Lifted?

By Mary Jane Freeman

When an individual debtor files for Chapter 7 or Chapter 13 bankruptcy, creditors must immediately stop their collection efforts. Creditors sometimes may attempt to get around this ban by petitioning the bankruptcy court to "lift" the stay. A bankruptcy lift allows the creditor to continue collection activity, such as garnishing wages or foreclosing on a home, while the bankruptcy case is in progress.

Bankruptcy Starts Automatic Stay

When a debtor files for bankruptcy, an automatic stay immediately goes into effect. As a result, creditors must cease collection activities while the bankruptcy case is underway. This means that harassing phone calls, collection letters and wage garnishments must stop. The stay ends when the bankruptcy case is complete.

Automatic Stay Lifted

On occasion, a creditor might petition the bankruptcy court to lift an automatic stay. Creditors ask to lift a bankruptcy stay for a variety of reasons, a common one being the assumption that a debtor is using bankruptcy to delay a foreclosure, repossession or eviction. If approved, the stay is lifted with respect to the specific debt owed to that creditor only. This means the creditor is free to pursue the debt regardless of the bankruptcy filing.

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The Difference Between Voluntary & Involuntary Bankruptcy

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