Today, we are discussing in somewhat greater depth the use and role of an automatic stay in bankruptcy. As you may know by now that filing of a petition invokes the automatic stay which comes into action right away and with full force. The automatic stays serves as a blanket injunction against all entities and individuals from any action that may directly or indirectly interfere with the administration of the estate. The idea behind an automatic stay is that it protects all entities and is intended to protect the debtor and the estate.
What is the Scope of Automatic Stay?
The automatic stay is intended to be comprehensive and limited only to its express exceptions. A good rule of thumb is that all collection efforts must be stopped against the debtor after his/her filing of bankruptcy even if you think you have a right to continue. Bankruptcy Code Section 362(a) is intentionally inclusive and provides that the filing of a voluntary or involuntary petition acts as stay applicable to all entities and prohibits the following types of acts:
1. The commencement or continuation, including the issuance of employment of process, of a judicial, administrative, or other action or proceeding against the debtor that or could have been commenced before the commence of the case under this title, or to recover a claim against the debtor that arose before the commence of the case under the Bankruptcy Code.
2. The enforcement, against the debtor or against property of the estate
3. Any act to obtain possession of property of the estate of the property from the estate or to exercise control over property of the estate, including acts to continue to exercise control over property that has been repossesses prepetition.
4. Any act to create, perfect, or enforce any lien against property of the estate.
5. Any act to collect, assess or recover a claim against the debtor that arose before the commencement of the case under the Bankruptcy Code.
5. The setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor.
How communication can be done with the Debtor? If a creditor harasses a debtor in an effort to collect a prepetition debt, it is a clear violation of the automatic stay.
What actions are not stayed under the automatic stay?Criminal prosecution
Enforcement of Domestic support obligations
Action to perfect or maintain a purchase money security interest
Enforcement of governmental regulatory and police power
Setoff of mutual debts by certain creditors
What are the penalties for violations of the stay?
The most important is contempt of court against the violator.
What is the duration of automatic stay?The automatic stay applies to acts against property of the estate until the property is no longer property of the estate. As to any other act, the stay terminates when:
1. The case is closed or dismissed, or the debtor receives a discharge, whichever is earlier.
2. Stay relief is ordered by the court.