Chapter 25 - § 25.4 • THE AUTOMATIC STAY

• Jurisdiction: Colorado

§ 25.4 • THE AUTOMATIC STAY

One of the most powerful features of bankruptcy is the automatic stay (stay). The stay is a court order that automatically goes into effect as soon as a debtor files bankruptcy. 11 U.S.C. § 362. The stay protects debtors from collection actions and stops most debt collectors dead in their tracks.

In some circumstances, creditors can file an action to lift the stay (called a motion for relief from stay). For example, a lender who filed foreclosure on the debtor's residence prior to the bankruptcy filing often will request court permission to proceed with the foreclosure sale. With a motion for relief from stay, the creditor must show cause why the court should allow the collection action to proceed. See 11 U.S.C. § 362(d) (setting forth the standard for when the court may modify, annul, or stop the automatic stay).

In some circumstances, creditors may begin or continue collection proceedings without seeking a relief from stay. For example, the stay does not affect the following proceedings:

1) Criminal proceedings, including punitive contempt, 11 U.S.C. § 362(b)(1);⁸
2) Actions to establish paternity;
3) Actions to establish, modify, or enforce domestic support obligations;
4) Actions concerning parental responsibilities;
5) Actions involving domestic violence; and
6) Actions for dissolution of marriage (except for division of property in the bankruptcy estate), 11 U.S.C. § 362(b)(2)(B).

The stay prevents commencement or continuation of actions against the debtor or any asset of the debtor or property of the bankruptcy estate. This includes property in which the debtor has a mere possessory interest. See Chrysler LLC v. Plastech Engineered Prods., Inc. (In re Plastech Engineered Prods., Inc.), 382 B.R. 90 (Bankr. E.D. Mich. 2008), and In re Burch, 401 B.R. 153 (Bankr. E.D. Pa. 2008).

It is very important to seek relief from the stay for all activities that may impact the debtor or his or her assets (referred to as the property of the estate).⁹ Failure to do so may result in significant sanctions. Section 362(k) provides that filing a pleading or otherwise continuing to pursue the debtor or the debtor's assets after one has notice of the bankruptcy may result in sanctions.

The relief-from-stay process is a summary proceeding. Unless waived by the creditor, a preliminary hearing must be conducted within 30 days from filing the motion. A final hearing, if necessary, must be conducted within 30 days from the preliminary hearing...