The Automatic Stay in Bankruptcy
The automatic stay is an important element in all bankruptcy proceedings. It essentially prevents most creditors from pursuing debts owed by the debtor.
According to § 362(a) of the Bankruptcy Code, an automatic stay goes into effect upon the filing of a bankruptcy petition. The automatic stay prevents creditors from pursuing most types of debt collection actions against the debtor.
The automatic stay remains in effect until the debtor receives a discharge, at which point the stay is replaced by a permanent injunction that prevents creditors from pursuing collection of all discharged debts.
The automatic stay goes into effect immediately when the debtor files for bankruptcy. Therefore, the debtor does not have to do anything to put the stay in place – it is automatic (with certain exceptions described below). The notice of bankruptcy filing that is sent by the Bankruptcy Court to all of the debtor’s creditors informs the creditors that an automatic stay is in effect.
There is an additional automatic stay when an individual files for bankruptcy under Chapter 13 of the Bankruptcy Code. This stay is provided for individuals who are jointly obligated on a consumer debt with the Chapter 13 debtor. The co-debtor stay in Chapter 13 protects co-debtors from collection actions until the bankruptcy case has closed or the creditor obtains relief from the stay.
Effect of the Automatic Stay
The automatic stay prevents creditors from pursuing debtors through any means, including the following:
Commencement or continuation of legal proceedings against the debtor
Acts to collect debts
Enforcement of judgments
Wage garnishment
Acts against the debtor's property, such as repossession, foreclosure, and creating/perfecting liens.
Any action taken in violation of the automatic stay is void, whether or not the creditor has actual knowledge that the stay is in place. A creditor that willfully violates the automatic stay can be ordered to pay the debtor’s actual damages, attorney’s fees, and, if appropriate, punitive damages.
Keep in mind that creditors can seek relief from the automatic stay by filing a motion in the Bankruptcy Court. If certain criteria are met, the court may grant the creditor relief from the stay and allow the creditor to proceed with collection of the debt. A typical example is when a debtor fails to make ongoing mortgage payments or motor vehicle loan payments after filing for bankruptcy. Creditors are usually granted relief from the stay under these circumstances. This is generally done in the context of a Chapter 13 bankruptcy case, and permits the creditor to proceed with a mortgage foreclosure or automobile repossession.
Effect of Prior Bankruptcy Filings on the Automatic Stay
If an individual has previously filed for bankruptcy, different rules may apply to the automatic stay in the subsequent bankruptcy case.
According to 11 U.S.C. § 362(c)(3) of the Bankruptcy Code, if a prior bankruptcy case was dismissed in the year before the filing of the present bankruptcy case, the automatic stay terminates 30 days after the bankruptcy filing, unless the stay is extended by the court after a showing by the debtor that the later case was filed in good faith.
Section 362(c)(3)(C) of the Bankruptcy Code states that the following elements will constitute a presumption that the later bankruptcy case was not filed in good faith, and that the automatic stay should not go into effect:
More than one previous bankruptcy case was pending within the preceding one year period;
A previous bankruptcy case was dismissed within a one year period after the debtor failed to file or amend documents as required by the Bankruptcy Code or the court without a substantial excuse; failed to provide adequate protection as ordered by the court, or failed to perform the terms of a plan confirmed by the court; or
There has not been a substantial change in the financial affairs of the debtor since the dismissal of the most recent preceding bankruptcy case.
Although these are the presumptions that a case was not filed in good faith, these presumptions may be rebutted if the debtor can show clear and convincing evidence to the contrary.
The debtor must file a motion with the bankruptcy court, demonstrating that the later case was filed in good faith, and requesting that the automatic stay continue for the duration of the bankruptcy case. The motion requesting continuation of the stay must be heard by the court within 30 days after the case is filed. These motions are generally filed in Chapter 13 cases where the debtor is seeking to continue a stay against foreclosure of their home.
Pursuant to § 362(c)(4) of the Bankruptcy Code, if two or more bankruptcy cases have been dismissed within the previous year, the automatic stay does not go into effect. However, the debtor may seek an order to impose the stay, by demonstrating that the present bankruptcy case was filed in good faith. A request to impose the stay must be made within 30 days of the filing of the current bankruptcy case.
Exceptions to the Automatic Stay
Under section 362(b) of the Bankruptcy Code, there are 28 exceptions to the automatic stay, or reasons that the stay will not go into effect in certain circumstances. The exceptions that primarily affect most consumers are:
Criminal proceedings
Paternity proceedings
Establishment or modification of a domestic support obligation
Child custody or visitation proceedings
Divorce or dissolution of marriage proceedings, except to the extent that such proceeding seeks to determine the division of property that is property of the bankruptcy estate
Civil proceedings regarding domestic violence
Collection of domestic support obligations from property that is not the property of the bankruptcy estate
Residential eviction if the landlord had obtained a judgment of possession prior to the filing of the bankruptcy petition. However, a debtor in this situation can seek a 30 day stay if the debtor files a certification with the court claiming that the debtor has a right to cure the monetary default under non-bankruptcy law, and the debtor, or an adult dependent of the debtor, has deposited with the clerk of the bankruptcy court all rent that would become due during the 30 day period after the filing of the bankruptcy petition (11 U.S.C. § 362(b)(22) and (l)(1)).
Call for a Free Consultation
Contact the Law Office of Andrew M. Doktofsky today to discuss how the automatic stay in bankruptcy applies to your situation. Andrew M. Doktofsky represents clients in Suffolk County, Nassau County, New York City, and surrounding areas. Call (631) 673-9600, or complete the contact form below.
Andrew M. Doktofsky P.C. is a debt relief agency. I help people file for bankruptcy relief under the Bankruptcy Code.