Automatic Stay
Choose a topic relating to an Automatic Stay from the list
below, or simply scroll down the page to view all its facets:
A. Generally
Immediately upon your filing for a petition for Chapter 7 or
Chapter 13 relief, you will receive the significant protections provided by the
"Automatic Stay". The effect of the Automatic Stay is awesome
and dramatic and its purpose is to protect you and your property. In
general, the automatic stay:
-
requires creditors to stop any collection efforts;
-
protects your property by prohibiting:
(i) the enforcement of judgments against you or your property;
(ii) acts to obtain possession or control of your property which is
considered to be Property of the Estate;
(iii) acts to enforce any lien which may exist against Property of the
Estate;
(iv) any other acts to collect, assess or recover a pre-petition claim
against you
-
abruptly halts most civil legal matters, including
proceedings for garnishments, evictions, and attachments.
B. Exceptions to Automatic Stay
Although the Automatic Stay is very broad, there are some types
of collection efforts (and other matters) which will not be halted by the
Automatic Stay, including:
-
the ability of a former spouse to collect alimony,
maintenance or support from the wages you earn after the filing of your
Chapter 7 case; and
-
a government unit beginning or continuing an action against
you to enforce its police or regulatory power.
C. Notice to Creditors of the Automatic Stay
Creditors receive written notice of the Automatic Stay from the
Clerk of the Bankruptcy Court by mail approximately several weeks after the
filing of the petition. If you have reason to believe that action may be
taken by a particular creditor before notice of the stay is provided by the
Clerk of the Bankruptcy Court (such as an expected repossession of your car),
your Attorney can provide to that particular creditor earlier written notice of
the filing of the petition and the existence of the Automatic Stay. Doing
so will eliminate the risk of collection by a creditor due only to its lack of
notice of the Automatic Stay.
D. Violations of the Automatic Stay by Creditors or Others
In instances where the Automatic Stay is violated by a creditor
or other party, the Bankruptcy Court is provided with broad and significant
power to undo certain violations.
Example:
Mike files a Chapter 13 case. Five days later, BIG BANK repossesses
his vehicle in violation of the Automatic Stay. The Bankruptcy Court can
order BIG BANK to return Mike's vehicle immediately, if BIG BANK does not return
the vehicle voluntarily upon the request of Mike's Attorney.
If the creditor knew of the bankruptcy filing and its associated
Automatic Stay violation, the creditor can face substantial fines from the
Bankruptcy Court.
Example:
In an actual and unusual case, I represented clients who had filed for
Chapter 13 relief. Apparently by mistake, a creditor having a lien on my
clients' vehicle sent men to my clients' home to repossess their vehicle on
which the creditor had a lien. My clients informed these men that their
car was protected by their Chapter 13 case and even showed them a copy of their
Chapter 13 petition. The men insisted on taking the car and did so.
With my assistance, the matter was brought before the Bankruptcy Court seeking
money damages for a willful violation of the Automatic Stay by the
creditor. The case was settled by the creditor paying $5,000.00 and a
hearing before the Bankruptcy Court was unnecessary.
E. Creditor Action to Remove Automatic Stay
Although the Bankruptcy Code provides many significant rights to
individuals filing for relief, one musts remember that creditors are also
provided with some rights. With respect to the Automatic Stay, a creditor
who believes that it is unfair for it to be subject to the Automatic Stay may
seek permission from the Bankruptcy Court to terminate, annul, modify, or
condition the Automatic Stay so that the creditor can take the action necessary to protect its interest (such a request before the Court is sometimes called a
motion to "lift the Automatic Stay" or "lift stay
motion"). Such motions by creditors are not unusual and arise under
various circumstances.
Example 1:
Before Bill files for Chapter 7 relief, MORTGAGE LENDER had begun a
foreclosure case in state court against Bill's residence. Upon filing for
the Chapter 7 case, the Automatic Stay arose and, therefore, MORTGAGE LENDER was
required to halt the foreclosure case. However, MORTGAGE LENDER requested
the Bankruptcy Court for permission to terminate (or "lift") the
Automatic Stay to enable it to continue the foreclosure action.
Note: In a Chapter 7 case, the Bankruptcy Court would likely grant
such an Order to lift the Automatic Stay because Chapter 7 (unlike Chapter 13)
is not designed to save one's residence from foreclosure.
Example 2:
SMALL BANK notices that it is not receiving payments from the Chapter 13
Trustee with respect to the lien that it has on Sam's pick-up truck. Upon
inquiry, SMALL BANK is informed that Sam is not making his monthly Chapter 13
payments to the Trustee. Therefore, SMALL BANK asks the Bankruptcy Court
to lift the Automatic Stay with respect to the pick-up truck so that it can rely
on the state law rights to repossess the pick-up truck.
Of course, merely because a request is made by a creditor for
relief from the Automatic Stay does not mean that this relief will be
granted. In many instances, your Attorney will have arguments which can be
presented to the Bankruptcy Court in opposition for such relief from the
Automatic Stay. In still other instances your Attorney may be successful
in conditioning the removal of the Automatic Stay for your benefit with respect
to a particular creditor.
Example:
Alice filed for Chapter 13 relief in order to try to save her house from a
foreclosure action by MORTGAGE LENDER. After 6 months of making payments
to the Chapter 13 Trustee, Alice falls behind on 3 payments on her mortgage
which she owes to MORTGAGE LENDER. Therefore, MORTGAGE LENDER files papers
before the Bankruptcy Court requesting that the Court lift the Automatic Stay
with respect to Alice's residence. In an effort to avoid the uncertainty
of a hearing, Alice's Attorney negotiates with MORTGAGE LENDER prior to the
scheduled Court hearing and an agreement called a "30-day Conditional
Order" is reached whereby the 3 payments which Alice failed to pay after
the filing of the Chapter 13 case will be paid to MORTGAGE LENDER within 30 days
and, in the event such payments are not made, the Automatic Stay will be
terminated with respect to Alice's residence so that MORTGAGE LENDER can pursue
its foreclosure rights under state law.
Note: MORTGAGE LENDER may be willing to make such an agreement in order
to avoid the time and expense involved in presenting the matter to the
Bankruptcy Court.
