What is the “automatic stay” in bankruptcy? Are any activities exempt from the stay?
An “automatic stay” protects a bankruptcy debtor from creditors’ collection activities and halts all judicial and administrative collection proceedings (including proceedings pending before the U.S. Tax Court). The stay is effective immediately after the bankruptcy petition is filed. The court clerk will send an Order for Relief to all creditors, stopping most collection activities and judicial proceedings. When a creditor receives adequate notice of a bankruptcy, the automatic stay prevents the creditor from contacting the debtor (unless the debtor has filed bankruptcy “in pro per” – that is, without the assistance of a bankruptcy attorney). A debtor who is injured by the willful violation of the automatic stay may recover actual damages, including costs and attorneys’ fees. In addition to providing the debtor protection against creditors, the automatic stay provides protection for creditors. If appropriate, the court will lift the automatic stay and allow certain creditors to pursue their claims against the debtor. The three ways in which the automatic stay is lifted include:
- Automatic lifting of the stay.
- By stipulation (i.e., agreement between the parties).
- By notice and motion filed with the court.
Not all activities, however, can be stayed. Proceedings and obligations that are not stayed by filing a bankruptcy petition and that will continue during the bankruptcy include, among others:
- Criminal actions.
- Domestic proceedings, such as dissolution of marriage, domestic violence, paternity actions and actions for domestic support or child custody or visitation actions.
- Withholding, suspension or restriction of a driver’s license or recreational or occupational license for failure to pay support obligations.
- Reporting overdue child support to any consumer reporting agency.
- Interception of a tax refund for domestic support obligations.
- Enforcement of an action by a governmental unit to enforce its police or regulatory power.
- Action to ascertain interest in property to the extent that the trustee’s rights and powers are subject to such determination.
- Setoff of a claim regarding commodity futures contracts.
- Setoff of a claim in connection with a repurchase agreement or a claim against debtor for a margin payment.
- Action by Secretary of Housing and Urban Development to foreclose on a mortgage or deed of trust when insured by the National Housing Act regarding property consisting of five or more living units.
- Tax obligations, including audits, demand for tax returns and tax assessment.
- Action by landlord of a nonresidential lease that expired before the petition was filed.
- Notice and protest of dishonor of a negotiable instrument.
- Action by an accrediting agency or state licensing body regarding the accreditation status or licensure of the debtor as an educational institution.
- Action on lien for property tax or special assessment on real property imposed by a governmental unit if tax comes due after filing the petition.
- Withholding of income from a debtor’s wages for a loan, pension, profit sharing, stock bonus, or other plan.
- Enforce a lien or security interest in real property if the property was subject to an order dismissing a bankruptcy case within the past two years. The debtor may request to be relieved from this provision after notice and hearing finds that the debtor acted in good faith.
- Continuation of an eviction action if the landlord obtained a judgment of possession prior to filing bankruptcy. (The debtor may contest this exception by filing a certificate, under penalty of perjury, stating that the governing law allowed the lease to remain in effect upon the debtor’s curing of the default that was the subject of the eviction.)
- Continuation of an eviction action if the rented property was endangered because of illegal use of controlled substances on the property, if the eviction proceeding was commenced before the bankruptcy filing or the endangerment occurred within 30 days of the bankruptcy filing. (The landlord is required to file a certificate detailing the facts that support this exception. The debtor may file a certificate denying the charges contained in the landlord’s certificate.)
- Investigation or enforcement action by a securities organization to enforce the organization’s regulatory power.
- The Secretary of Health and Human Services’ exclusion of the debtor from participation in the Medicare program or other Federal health care program.
Certain aircraft and other equipment are not covered by the automatic stay. In addition, a utility company may not discontinue service upon receipt of an Order of Relief. The debtor or the bankruptcy trustee has 20 days after an order for relief to provide the utility company with a deposit or other security to assure payment for future service. The court may, after notice and hearing, modify the amount of deposit required to continue service.