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What Is the Automatic Stay in Bankruptcy?

Oct. 8, 2021

Usually, a person filing for bankruptcy protection is doing so because of creditors that are seeking to take action against that individual or the person’s property. To protect the bankrupt individual and that individual’s property during the process, the Bankruptcy Code imposes the Automatic Stay. The Stay essentially stops creditors from collecting debts from a debtor until the bankruptcy proceedings are complete. The debtor can sue those who violate the Stay.

What Does the Automatic Stay Do?

The Automatic Stay is essentially an injunction imposed against certain creditors of the debtor filing for bankruptcy. However, the Stay doesn’t stop every action, so you must check the Code or your bankruptcy attorney to understand which cases might proceed under the Stay.

What Actions Are Stayed?

Under the Bankruptcy Code, once a case is filed, certain actions are stayed during the pendency of the bankruptcy. These stayed actions include:

  • Actions that could have been filed before the bankruptcy was filed or where the claim arose before the filing

  • Enforcement of a judgment obtained before the bankruptcy was filed

  • Any action to obtain possession or control of property of the bankruptcy estate

  • Any action to create, perfect, or enforce a lien

  • Any action for a lien to the extent it would secure a claim arising before the filing of the bankruptcy

  • Any action to collect, assess, or recover a claim that arose before the filing

  • Setoff of any debt owed to the debtor that arose before the filing

None of these actions can be pursued while the bankruptcy is pending.

Which Cases Aren’t Stayed?

Exceptions to the Automatic Stay include, but aren’t limited to:

  • Criminal actions against the debtor

  • Collection of child support from a third party

  • Cases involving garnishment for purposes of child support payments

  • Case suspending, restricting, or withholding a driver’s license, professional license, or recreational license

  • Interception of a tax refund

  • Tax audits, notices of tax deficiencies, demands for tax returns, or the making of an assessment or payment of the same

Can a Creditor Get Around the Stay?

A creditor can file a Motion for Relief from the Automatic Stay and, if approved by the bankruptcy court, the Stay will be removed or modified so that the creditor can resume collection efforts. In seeking relief, the creditor has to explain the basis for the request. The motion is most common in a matter relating to a secured loan where the debtor is behind on mortgage or car payments, cannot maintain necessary insurance, or cannot fund a Chapter 13 repayment plan. Further, if the creditor can prove that the property at issue won’t bring any assets to the unsecured creditors, the Stay may be lifted.

The Stay may also be lifted where the litigation is not related to or will not affect the bankruptcy. These cases can include landlord/tenant disputes and insurance claims for personal injury or property.

Cases that would likely be discharged under the bankruptcy case will likely be denied relief. For example, an action for credit card debt won’t be relieved of the Stay since it will probably be discharged in the case itself.

Call an Experienced St. Louis Bankruptcy Attorney Today

As you can see, bankruptcy law is not simple. To best protect the assets that you may be able to keep after the process, contact a skilled bankruptcy attorney today.