The Automatic Stay

When a bankruptcy petition is filed in court most collection activities against the debtor must cease. Section 362 of the Bankruptcy Code 11 U.S.C. is known as the “automatic stay.”

The automatic stay applies to:
1) Creditors, who are prevented from going to court or continuing any judicial or administrative proceedings against the debtor to collect a debt. A creditor cannot try to obtain possession or control over any property held by the debtor or to create or enforce a lien against property of the debtor. The automatic stay exists only for claims against the debtor that arose before the debtor filed for bankruptcy.
2) Proceedings in the U.S. Tax Court concerning a tax liability; and
3) Residential Housing. A landlord is preventing from trying to obtain possession of residential rental property during the stay, but not from obtaining commercial property. Foreclosure on a mortgage is normally stayed, except when the action is by the Secretary of Housing and Urban Development to foreclose on a property consisting of five or more units.

The automatic stay does not apply to:
1) Criminal Proceedings, against the debtor;
2) Domestic Support Obligations, such as civil actions concerning the establishment of paternity; the establishment or modification of domestic support obligations; child custody or visitation; the dissolution or marriage; or domestic violence. The division of property in a dissolution of marriage case is stayed and so is the collection of domestic support obligations from property of the debtor, except with respect to withholding of income under a judicial or administrative order or a statute.

The stay does not apply to cases where a state withholds, suspends, or restricts the use of driver's licenses, professional and occupational licenses, and recreational and sporting licenses of individuals owing overdue support or failing, after receiving appropriate notice, to comply with subpoenas or warrants relating to paternity or child support proceedings. Overdue support owed by a parent may still be reported to any consumer reporting agency and a tax refund may still be intercepted. A medical support obligation owed to a state under Title IV of the Social Security Act is not stayed.

Relief from the Stay
The automatic stay will normally continue until the bankruptcy case is closed or dismissed, or when a discharge of debt is granted or denied. However, if the debtor had previously filed a bankruptcy case in the preceding year which was dismissed then the automatic stay will terminate after 30 days. The automatic stay may also be terminated on the motion of a party of interest after notice and a hearing, or when the court grants such relief to avoid irreparable damage to a party of interest.

This article is only an introduction to the automatic stay. A bankruptcy attorney can protect your rights and represent you in adversarial proceedings, such as when a creditor tries to gain relief from the stay.