1. The “automatic stay” provisions of section 362(a) of the Bankruptcy Code are probably the most important tool available to the Debtor when filing a bankruptcy petition, whether it’s a chapter 7 petition, chapter 11 petition or a chapter 13 petition. Essentially, filing a petition, even an involuntary petition under section 303 of the Bankruptcy Code, operates as an automatic stay, applicable to all entities, mostly creditor entities,
(a) Except as provided in subsection(b) of section 362, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as an automatic stay, applicable to all entities.
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) 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 case under this title;
(6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
(7) 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; and
(8) the commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the order for relief under this title. Under section 362(b), the filing of the Petition does not operate as a stay of the commencement or continuation of a criminal action or proceeding against the debtor, and the following:
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as an automatic stay –
(1) under subsection (a) of this section, of the commencement or continuation of a criminal action or proceeding against the debtor;
(2) under subsection (a) –
(A) of the commencement or continuation of a civil action or proceeding-
(i) for the establishment of paternity;
(ii) for the establishment or modification of an order for domestic support obligations;
(iii) concerning child custody or visitation;
(iv) for the dissolution of marriage, except to the extent that such proceeding seeks to determine the division of property that is property of the estate; or
(B) of the collection of a domestic support obligation from property that is not property of the estate;
(C) with respect to withholding of income that is property of the estate of property of the debtor for payment of a domestic support obligation under a judicial or administrative order or a statute;
(D) of the withholding, suspension, or restriction of a driver’s license, a professional or occupational license, or a recreational license under State law, as specified in section 466(a)(16) of the Social Security Act;
(E) of the reporting of overdue support owed by a parent to any consumer reporting agency as specified in section 466(a)(7) of the Social Security Act;
(F) of the interception of a tax refund, as specified in section 464 and 466(a)(3) of the Social Security Act or under an analogous State law; or
(G) of the enforcement of a medical obligation as specified under title IV of the Social Security Act;
What’s important about the automatic stay is that it automatically goes into place upon the filing of a voluntary petition for bankruptcy relief whether its chapter 7, chapter 11 or chapter 13. Although it’s generally wise to give some kind of fax or email notice to a creditor that is about to take action against the debtor, such as a repossession, a trustee’s foreclosure sale or wage garnishment.
It is better practice to spend 2 to 3 minutes sending, emailing or faxing out a Notice to a creditor about to take an aggressive action against the debtor, as oppose to taking some action against the creditor for violating the stay by taking action after a voluntary petition for bankruptcy was filed, even though they may have not known about the filing itself.
The automatic stay continues until such property is no longer property of the estate, or the Automatic Stay of section 362 continues until the earliest of – (A) at the time the case is closed; (B) at the time the case is dismissed; (C) if the case is a case under chapter 7 of this title concerning an individual or a case under chapter 9, chapter 11, chapter 12, or chapter 13 of this title, the time of discharge is granted or denied.
That explains why in a chapter 7 case that normally last 4 to 8 months from the time of petition filing to the time the discharge is entered, why a secured creditor takes no action to obtain relief from the stay. It can recommence its Trustee’s foreclosure sale or any other action to take possession of real property after the discharge has been granted or denied.
The way for a creditor to gain relief from the automatic stay, or to lift the bankruptcy umbrella from actions that the creditor may intend or was acting upon the petition filing, is found in section 362(d), which states that the Court may grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay –
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest.
(2) with respect to an automatic stay of an act against property under subsection (a) of this section, if –
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization.
In the case of single asset real estate cases, there are certain matters that determine when a creditor may gain relief from the stay, such as the debtor filing within the 90 day period a Plan of Reorganization that has a reasonable possibilities of being confirmed within a reasonable time; or the debtor commenced monthly payments that are in an amount equal to interest at the then applicable full contract rate of interest on the value of the creditor’s interest in the real estate. An individual filing a petition can always resort to providing adequate protection to the creditor in order to stop the court from terminating, modifying, annulling or conditioning the automatic stay provisions of section 362(a).
Ways of getting adequate protection are found in section 361 of the bankruptcy code. The most common method of providing adequate protection to creditors is to make a cash payment or periodic cash payments to such creditor entity, or provide such entity an additional or replacement lien to the extent such stay, use, sale, lease or grant results in a decrease in value such entity’s interest in such property; or granting such other relief, that will result in the realization by such entity of the indubitable equivalent of such entity’s interest in such property.
This may seem like a lot of information but it is designed to protect you. Give us a call at (775) 786-7600 or (775) 690-9120 for a free and confidential consultation to discuss your financial situation, alternatives to bankruptcy and the many details of filing for bankruptcy whether it be chapter 7, chapter 11 or chapter 13.