What is automatic stay?

The automatic stay is a statutory injunction against a wide variety of creditor collection actions against the debtor. It is automatic because the debtor does not have to request the stay from collection proceedings; rather the stay goes into effect immediately upon the filing of the bankruptcy petition. The automatic stay does not change the creditors’ rights against the debtor. It merely stays collection proceedings during the pendency of bankruptcy. 

The automatic stay is not permanent – a creditor may obtain relief from the stay from the court if an appropriate showing is made. A creditor who violates the automatic stay may be punished by contempt sanctions or, if a violation is willful, may be liable for actual damages, including costs and attorneys’ fees.

Does automatic stay protect co-debtors?

In Chapter 7, the automatic stay protects only the debtors. So, once the debtor files Chapter 7, creditors of the debtor must stop all collection activity against the debtor. However, creditors may pursue collection against any non-filing individuals who are also responsible on the debt, such as co-signers.

In Chapter 13, however, the automatic stay protection also extends to non-filing co-debtors with consumer debts during the Chapter 13 case. Consumer debts are debts incurred for personal, family, or household purposes (e.g., credit card debt incurred for personal expenses rather than business, home mortgage, home equity loans to pay for personal expenses or home improvements, car loans for personal vehicles, child support, etc.). Non-consumer debts include business debts, personal and business taxes, mortgage for rental properties, car accident damages, etc. and not protected by the co-debtor stay.

What actions are immediately stopped by bankruptcy filing? 

The automatic stay is effective against the following creditor collection actions pertaining to the pre-petition debts of the debtor:

  • All formal proceedings against the debtor to recover pre-petition claims or enforce pre-petition judgments (e.g., filing or continuing a lawsuit against the debtor after the bankruptcy filing, continuing a garnishment that was initiated prior to bankruptcy, license revocation, collection of a judgment, suspension of a driver’s license due to a judgment, etc.)

  • Acts against property of the estate (e.g., termination of the debtor’s lease, eviction, etc.)

  • Creation, perfection, or enforcement of liens against the estate property or the debtor (e.g., foreclosure, repossession, etc.)

  • Setoffs of pre-petition debts (e.g., deducting a debt a debtor owes to the bank from the debtor’s checking account with the bank)

  • Government actions to collect federal taxes for taxable periods that ended prior to the filing of the bankruptcy petition, such as commencement or continuation of judicial proceedings.

What actions are not stopped by bankruptcy filing?

The automatic stay does not stay the following proceedings:

  • Criminal prosecution

  • Paternity actions

  • Proceedings relating to domestic support obligations

  • Proceedings concerning child custody or visitation

  • Proceedings for the dissolution of marriage, except those relating to the division of property

  • Proceedings regarding domestic violence

  • Collection of domestic support obligations from property that is not property of the bankruptcy estate

  • Withholding of income for payment of domestic support obligations under a court order

  • Government’s set off of an income tax refund pertaining to a pre-bankruptcy taxable period against a pre-bankruptcy income tax liability

  • Government enforcement of its police or regulatory powers, e.g., non-monetary judgments and fines for violation of local zoning ordinances.

  • An audit by a government unit to determine tax liability, the issuance of a notice of tax deficiency, a demand for tax returns, a tax assessment and issuance of a notice and demand for payment.

  • Action to obtain possession of nonresidential real property that is subject to the expired lease

  • Withholding of income and collection of amounts withheld for repayment of loans of certain pensions, profit-sharing, stock bonus, plan under IRS section 401, 403, 408, 408A, 414, 457, or 501(c).

  • Continuation of eviction against a debtor involving residential property in which the debtor resides as a tenant if the landlord obtained a judgment of possession of such property prior to bankruptcy.

  • Enforcement of liens against or security interests in real property if the debtor was ineligible to file bankruptcy.

  • Enforcement of liens against or security interests in real property following certain orders in a prior bankruptcy case.

  • Transfers that are not avoidable under section 544 or 549 of the Bankruptcy Code.

  • Setoffs of certain income tax refunds by a governmental unit with respect to tax periods ending before the bankruptcy filing against income tax liabilities ending before the bankruptcy filing.

When does automatic stay expire?

With respect to property of the estate, the automatic stay terminates when such property is no longer property of the bankruptcy estate, such as when the property is abandoned by the trustee, determined to be exempt, sold, or because a plan is confirmed. The automatic stay with continue with respect to the exempt or abandoned property, except with respect to debts for nondischargeable income taxes, tax liens, domestic support obligations, liens that cannot be avoided, student loans or financial assistance obtained by fraud.

With respect to other acts, the automatic stay expires at the time the bankruptcy case is closed, dismissed, or when a discharge is granted or denied, whichever happens first, with two exceptions. The duration of the automatic stay is limited to 30 days in cases where the debtor had a previous bankruptcy case dismissed within a year of filing. The automatic stay does not apply to debtors with two or more dismissed Chapter 7 cases within a year of filing.

Once the debtor receives a discharge and the case is closed, the automatic stay is replaced by a permanent injection prohibiting collection of debts from the debtor, except as to non-dischargeable debts. The post-bankruptcy permanent injunction does not prevent enforcement of the liens against the property that survived bankruptcy.

Can a creditor terminate automatic stay before the end of the case?

A creditor may requests the bankruptcy court to terminate the stay on various grounds, including the lack of adequate protection, if the debtor has no equity in the property, if the property is not necessary for effective reorganization, to prevent irreparable damage to the interest in the property, or if the bankruptcy was filed to delay, hinder, or defraud creditor, such as in the case of multiple bankruptcy filings.

As a rule, the stay automatically terminates 30 days after a request to lift the stay has been made, unless the court continues the stay if there is a reasonable likelihood that the debtor will prevail and schedules a hearing. The court has 60 days from the request to lift stay to make a final decision, unless this period is extended.

The co-debtor stay may be terminated by the creditor if:

  • the co-debtor actually received a consideration for the debt, such as when the co-debtor is really a beneficiary of the debt, whereas the bankruptcy debtor is only a guarantor of the debt;

  • the debtor does not propose to pay 100% of the creditor’s claim through the Chapter 13 plan (the stay may be lifted to the extent the creditor will not be paid through the plan);

  • the creditor’s interest would be irreparably harmed by continuation of the stay, for example, when the co-debtor’s own financial situation is worsening or the co-debtor is about to leave the jurisdiction.

The co-debtor stay issues frequently arise when the debtor assumes the debt as part of the divorce decree and does not offer to pay 100% of the assumed debt through the Chapter 13 plan. Because divorce decrees are not binding on creditors (a divorce decree is merely a contract between the spouses which is enforceable only by the family court), the creditor can lift the stay and proceed against the non-filing spouse (co-debtor).

Damages for Violation of Automatic Stay

If a creditor causes an injury to debtor by willfully violating the automatic stay, the debtor may be able to recover actual damages, including costs and attorneys’ fees, and in some cases, punitive damages.

How can we help?

We can help you file bankruptcy to immediately stop collection of debts through garnishment, levy, or suspension of driver’s license or evaluate alternatives to bankruptcy to protect your property.

At Anna Handy Law Firm, P.A., we are acutely aware of the financial strain of our clients. We do not charge you for the initial phone consultation. We do not push you to file bankruptcy to get a retainer. We don’t judge – we find solutions. We give you honest advice about your options and rights, including the “doing nothing” approach. As such, we offer very affordable bankruptcy fees. We make our fees competitive and in certain cases, we offer payment plans to address each case individually as each case has a different set of circumstances. 

If you are overburdened by your debts, being sued or harassed by creditors, or subject to wage garnishment, do not hesitate to call us now for a free initial phone consultation. The attorney’s direct business cell phone number is (386) 248-3000. You may also email us at [email protected].

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