During the last 13 blog posts we’ve covered the automatic stay—crucial protection that filing bankruptcy gives you. Here’s a helpful summary.
1. The Basic Protection
The automatic stay is the very strong legal protection from your creditors you receive when you file a bankruptcy case. The automatic stay stops virtually all attempts by creditors to collect their debts against you, your money, and your property. It goes into effect at the moment you or your lawyer files your bankruptcy case. (See Section 362(a) of the U.S. Bankruptcy Code.)
2. Relief from the Automatic Stay
Sometimes this protection is only temporary. Creditors have some say about whether the automatic stays in effect, its protection ends, or is modified. (See Section 362(d) of the Bankruptcy Code.) Most creditors which file motions for relief from stay are doing so to get permission to repossess collateral. Or they are trying to put conditions on the automatic stay to induce you to keep making your stream of payments on the collateral-secured debt.
3. Creditor Relief Not to Pursue Collateral
Creditors sometimes have reasons to ask for “relief from stay” that does not involve collateral on a debt. It can be to ask for permission to finish resolving an ongoing dispute outside of bankruptcy court. Some reasons a creditor might ask for relief from stay are to:
- determine whether you are liable on the debt or claim at all
- calculate, if you are liable, the amount of your liability
- pursue insurance proceeds only
- determine the dischargeability of a debt outside the bankruptcy case
- get a bankruptcy court ruling about whether the creditor would be violating the automatic stay
- pursue a co-debtor (Section 1301)
- get permission to take other action not directly involving paying the debt
4. “Adequate Protection”
To keep possession of your property that is collateral on a secured debt, you need to give the creditor “adequate protection.” This generally involves 1) paying the creditor periodic (usually monthly) payments, 2) in an amount large enough to at least offset any reduction of the creditor’s interest in the property while you keep the property. (See Section 361.)
5. Exceptions of the Automatic Stay for Certain Creditors and Their Acts
a. Criminal Matters:
Bankruptcy does not prevent a district attorney or other governmental authority from starting or continuing a criminal case against you. That includes any step of a criminal case: arrest, indictment, plea bargaining, trial, sentencing, appeal, and incarceration. The automatic stay simply does not apply to criminal matters. (See Section 362(b)(1).)
b. Family Court Proceedings:
Your ex-spouse, about-to-be ex-spouse, or somebody on his or her behalf, can start or continue the following limited proceedings:
- to establish the paternity of a child
- to establish or modify the amount of child or spousal support
- to resolve issues of child custody or visitation
- to address domestic violence
c. Collection of Child and Spousal Support:
The automatic stay does not stop the collection of ongoing child or spousal support. Your ex-spouse or a support enforcement agency can continue to collect by any legal means. This is true no matter what kind of bankruptcy you file.
Besides ongoing support, Chapter 7 “straight bankruptcy” also does not stop the collection of unpaid and previously accrued support arrearage. This means that under Chapter 7 your ex-spouse/support enforcement agency can start or can continue collecting all forms of support through means that can often include:
- wage withholdings
- garnishment of bank accounts
- seizure of a tax refunds
- suspension of your driver’s licenses (both regular and occupational)
- suspension of virtually all other licenses issued to you by the government, including occupational and professional licenses, and often including even hunting or other recreational licenses.
(See Section 362(b)(2)(B-D).)
d. The IRS and State Tax Authorities:
The IRS/state can take certain administrative actions related to DETERMINING the amount of tax you owe, but NOT to COLLECTING the tax. So, in spite of you filing bankruptcy, they can do the following:
- Start or finish a tax audit “to determine tax liability.” (Section 362(b)(9)(A) of the Bankruptcy Code.)
- Send you a notice about the amount of tax that you owe—a “notice of tax deficiency.” (Section 362(b)(9)(B).)
- Demand that you file your tax returns, a legal requirement understandably not affected by your bankruptcy filing, and which indeed is often necessary to be able to administer your bankruptcy case. (Section 362(b)(9)(C).)
- Make an “assessment” of your taxes and issue a “notice and demand for payment.” (Section 362(b)(9)(D).)
- Under certain limited circumstances a tax lien can attach to your personal property and real estate. (Section 362(b)(9)(D).)
e. Residential Leases:
The automatic stay stops your landlord from taking away your right to your rental, for a period of time anyway. If your landlord has taken legal action to remove you from rental premises and has NOT yet gotten a judgment for possession of the premises, your bankruptcy filing will stop that proceeding and will stop the landlord from removing you. But an eviction is NOT stopped if the landlord “has obtained before the date of the filing of the bankruptcy petition, a judgment for possession of such property against the debtor.” (Section 362(b)(22).)
f. “Endangerment of Property” and “Illegal Use of Controlled Substances”:
A residential landlord doesn’t necessarily need a judgment of possession. If it believes that you are either endangering the rental property or there’s an illegal used of a controlled substance on the property, it can certify this to the bankruptcy court. If you don’t object the landlord gets relief from stay to evict you. If you object and prevail, the automatic stay protection continues. (Section 362(b)(23).)
6. Losing the Automatic Stay through a Prior Bankruptcy Filing
You could you lose the automatic stay as to all of your creditors (not just one creditor filing a motion for relief from stay). That could happen if:
- during the one-year period before filing a new case you were in a prior bankruptcy case; and
- that prior case was “dismissed” (thrown out and/or closed before it was completed).
Then the automatic stay could altogether terminate 30 days after filing your new case.
However, the automatic stay would remain in force if within those 30 days you established with the bankruptcy court that your present bankruptcy case was filed in good faith. (Section 362(c)(3) of the Bankruptcy Code)
7. Lack of the Automatic Stay through Multiple Bankruptcy Filings
You could file bankruptcy and not receive the protection of the automatic stay from the beginning. That could happen if:
- during the one-year period before filing a new case you were in two or more prior bankruptcy cases, and
- those prior cases were “dismissed” (thrown out and/or closed before being completed).
Then the automatic stay “shall not go into effect upon the filing of the later case.”
However, the automatic stay would come into force once you established with the bankruptcy court that your present bankruptcy case was filed in good faith..” (Section 362(c)(4))