Personal Bankruptcy - How an Automatic Stay Works
Just as the name implies, a stay of further collection efforts is automatically invoked upon filing personal bankruptcy under Chapter 7. An automatic stay acts as an injunction against creditors to prevent further collections. No phone calls. No letters. No lawsuits. Foreclosure dates are set aside.
Protection of the personal bankruptcy estate
Creditors frequently file motions with the court requesting that automatic stays are terminated. A secured creditor may believe a debtor has no means of paying for an automobile securing a loan, and further believe the debtor intends to remove the collateral to a foreign country. Nevertheless, the stay is automatic upon filing personal bankruptcy and prevents repossession unless a court grants permission for collection to resume. Courts are reluctant to lift stays. Chapter 7 bankruptcy laws are intentionally designed protect the personal bankruptcy estate until disposition of assets is determined by operation of law.
Actions prevented by filing personal bankruptcy
11 U.S.C. 362(a) governs the automatic stay in personal bankruptcy. The automatic stay prevents the following actions:
- commencement or continuation of a judicial, administrative, or other action while personal bankruptcy is pending;
- recovery a claim against the debtor that arose before the commencement of personal bankruptcy;
- enforcement of a judgment obtained before the case was filed;
- any act to obtain possession of property of the personal bankruptcy estate or of property from the personal bankruptcy estate or to exercise control over property of the personal bankruptcy estate;
- any act to create, perfect, or enforce any lien against property of the personal bankruptcy estate;
- any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the personal bankruptcy case;
- any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the personal bankruptcy case;
- the setoff of any debt owing to the debtor that arose before the commencement of the personal bankruptcy case; and
- the commencement or continuation of a proceeding before the United States Tax Court.
Actions allowed in personal bankruptcy
According to 11 U.S.C. 362(b), the automatic stay does not prevent the following actions:
- a criminal action or proceeding against the debtor;
- the establishment or modification of an order for alimony, maintenance, or support;
- the establishment of paternity;
- collection of alimony, maintenance, or support;
- setoff of a claim against the debtor for a margin payment;
- an audit by a governmental unit to determine tax liability of the personal bankruptcy estate;
- of any act by a lessor to the debtor under a lease of nonresidential real property that has terminated by the expiration of the stated term;
- the presentment of a negotiable instrument;
- to foreclose a preferred ship or fleet mortgage against the personal bankruptcy estate, and
- the creation or perfection of a statutory lien for an ad valorem property tax imposed by the District of Columbia, or a political subdivision of a State, if such tax comes due after the filing of the petition.
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