The Automatic Stay
1.0 In General
As indicated previously, the filing of a bankruptcy creates something called an automatic stay. This “stay” limits the actions that creditors can take against you once you have filed for bankruptcy. Some actions are prohibited, some actions are always allowed, and some actions may be allowed. In the material that follows each of these categories will be discussed.
2.0 Prohibited Actions
Subject to the exceptions set forth in 362(b) the automatic stay prevents a creditor from taking any action to collect their debt or improve their financial position in relation to your other creditors. Under the old law this mean that they could not file legal action against you, continue a foreclosure, continue any legal action that has already been filed, garnish wages, perfect a lien or security interest, or call you on the phone. Under the new law these rights still exist but have been modified.
3.0 Allowed Actions
Under former law, bankruptcy did not stop criminal prosecutions, actions to determine paternity, actions to collect alimony, maintenance, or support, or an action by a government unit to enforce a police or regulatory power. Under the amendments to 362(b) this has been expanded to include: (1) all domestic actions, including the filing of a divorce; (2) wage withholding for domestic obligations, (3) suspension of a license under section 466(a)(16) of the Social Security Act, (4) reporting of past due support, (5) the interception or offset of a tax refund, (6) the enforcement of a medical obligation under the Social Security Act, (7) withholding contributions or loan payments on a retirement loan from wages, (8) foreclosure of real property if a stay lift was granted in a prior case in the last two years and such order was recorded, (9) foreclosure of real property if the debtor is ineligible to be a debtor under 109(g) or the case was filed in violation of a court order in a prior case, (10) continuation of an eviction action where the landlord obtained prior to filing an order for possession, (11) an eviction action where the tenant has endangered the property, used controlled substances, or allowed controlled substances to be used on the property, (12) a securities action, (13) tax court proceedings, and (14) termination of medicare or other federal health care benefits.
4.0 Actions That May Be Allowed
Under prior law the stay automatically terminated against property of the estate when property was no longer part of the estate and against all other actions when the case was closed, dismissed, or discharged. The stay could also be lifted for cause (such as failure to make the monthly payment on secured property or to prevent irreparable damage).
Under the new law there are additional grounds for lifting (or terminating) the automatic stay. First, the automatic stay terminates automatically 30 days after filing in every case (7, 11, or 13) when a case pending in the last year was dismissed, unless the new case is an 11 or 13 and the prior case was a 7 dismissed under 707(b). Second, there is no stay at all after filing when 2 or more cases pending in the last year were dismissed, not counting a case under 11 or 13 filed after a cased dismissed under 707(b). Third, the stay will be lifted as to any real property after notice and hearing where the creditor proves that the current filing was “part of a scheme to delay, hinder, and defraud” involving the transfer of an ownership interest without consent of the secured creditor or multiple bankruptcy filings. Fourth, the stay is lifted as to any secured personal property if the debtor fails to file the statement of intent within 30 days of filing. And, fifth, the stay is listed as to secured or leased personal property 60 days after filing if the debtor fails to reaffirm or accept. It should also be noted that under 521(i) the failure to timely file any required document in any case results in automatic dismissal of the case on the 46th day after filing.