The Automatic Stay

The automatic stay is a statutory injunction that takes effect when a bankruptcy petition is filed. The stay restrains or "stops" creditors or their lawyers from taking action to collect a debt. It is designed to protect the debtor and "property of the estate" that is the bankruptcy clients property, from reach of the clients creditors under non-bankruptcy laws.

The filing of a bankruptcy case invokes the automatic stay. No further actions or hearings are required to obtain this protection. Rather the burden is on the clients creditors or their lawyers to undo or "lift the stay", or on the bankruptcy court to dismiss clients case if the bankruptcy debtor is not acting in good faith with respect to secured creditors or the bankruptcy court.

Acts Enjoined by the Stay

With a few exceptions the "stay" enjoins almost all acts against a debtor by creditors or their lawyers to collect a money obligation. Acts Enjoined: The commencement or continuation of a judicial, administrative or other action against the bankruptcy debtor if the action is intended to recover a pre-petition claim. Any act to obtain possession of the bankruptcy debtors property, or to exert control over this property. Any act to create, perfect of enforce a lien against the debtors property is enjoined. Any act to collect, recover or assess a claim against the debtor that arose proper to the filing of the bankruptcy if forbidden. Thus, creditors or their lawyers may not bother or intimidate the debtor about the repayment of pre-filing money obligations. The commencement or continuation of a case in the United States Tax Court concerning the bankruptcy debtor is specifically stayed since the jurisdiction of the bankruptcy court includes the power to adjudicate relevant tax liability issues.

Exceptions to the Stay

A Federal Credit Union has a special statutory lien against a bankruptcy debtors share account for any other debts that the bankruptcy debtor may owe to the credit union. Thus a credit unions lawyer  may freeze a bankruptcy filers share account after the filing of the bankruptcy to protect it's interest in the account as a set-off against the debt which the debtor is discharging in the bankruptcy case. A regular savings bank does not have the same right. Criminal proceedings, and their commencement or continuation is not stayed by filing a bankruptcy, even if the crimes are money related, such as theft or embezzlement. The collection of alimony, maintenance or child support against the debtors post filing earnings, or against the debtors interests that are not "property of the estate" are not stayed. Thus proceedings against the bankruptcy debtors person or the debtors drivers license are not stayed. The commencement or continuation of a proceeding by a government unit to enforce it's police or regulatory power is not stayed.

Expiration of the Stay

Upon the debtors bankruptcy discharge, the automatic stay becomes a permanent injunction against collection of the debts. In a Chapter 7 case however, the stay ends with respect to un-avoided liens and a creditor or their lawyers may use self help or legal process to repossess collateral with non-avoided liens. Most security interests that arise through "purchase money" financing contracts cannot be avoided by the bankruptcy trustee or the bankruptcy debtors attorney and thus if the debtor intends to keep the purchased collateral against the rights of the creditor, he should be prepared to negotiate with the creditor after the bankruptcy discharge.

Relief from the Stay

Upon the filing of a proper motion by a creditors lawyer with supporting legal grounds the court may lift the stay to allow the creditor to proceed against the bankruptcy debtor directly. While as this may seem to many to thwart the purpose of filing the bankruptcy, keep in mind that in all other types of cases, it is the burden of a party seeking an injunction to file a motion stating proper legal grounds for (1) irreparable harm and (2) a probability of success on the merits of the case in the underlying action. The injunction is ordinarily not granted without a prior evidentiary hearing. Here, the debtor gets this injunction "automatically" and the burden shifted to the creditor to lift it.

Chapter 7	Chapter 13
Are you spending almost all of your income to pay living expenses?	Are you behind on your home loan? (Need to stop foreclosure and save your home)
Are creditors calling and demanding money that you need to feed yourself and your family?	Do you owe taxes or student loans that do not meet the requirements for a discharge?
Is there no money left to pay credit cards, medical debt or judgments?	Do you want to protect a friend or relative who co-signed for you?
Are wages needed for living expenses being garnished by a creditor?	Do you need to bring current child or spousal support payments?
Was your debt incurred involuntarily, as by sudden calamity or illness?	Do you have debts incurred by reason of drunk driving or fraud?
Have you had a recent job loss or a marital break-up?	Do you need to protect non-exempt assets?
Have you suffered emotional distress from creditor harassment and are you eligible for relief under 7?	Have you previously filed Chapter 7 within the last eight years?

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