If they meet the necessary requirements, creditors may obtain relief from the automatic stay by filing a motion under § 362(d) of the Bankruptcy Code, which initiates a contested matter before the bankruptcy court. Upon the filing of a bankruptcy petition and commencement of a bankruptcy thereby, these automatic stay provisions enjoin most types of collection activities and other creditor actions against the debtor and its assets.
The automatic stay applies to all of the chapters of the Bankruptcy Code. It does not protect nondebtor entities such as corporate affiliates, corporate officers, codefendants, guarantors, or general partners of the debtor. Whether a creditor’s particular action is subject to the automatic stay often depends on whether the claim arose before or after the filing of the bankruptcy case.
In Chapter 7 cases, Creditors may obtain relief from the automatic stay pursuant to § 362 of the Bankruptcy Code upon a showing that there is no equity (the value of the property less all encumbrances) in the property. In Chapter 13 cases, Creditors may obtain relief from the automatic stay pursuant to § 362(d)(2) of the Bankruptcy Code upon a showing that there is no equity in the property and such property is unnecessary to the debtor’s effective reorganization.
For a creditor to satisfy the first requirement, the value of the property may not exceed the amount of all debts secured by liens on the property. To meet the second requirement, a creditor must show that an effective reorganization may occur without the property or that the debtor is unlikely to successfully reorganize within a reasonable time.
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