Chapter VI The Automatic Stay

• Jurisdiction: United States

VI. The Automatic Stay

A. The Protections of the Automatic Stay

1. When Effective

The filing of a petition immediately and automatically, without further order or proceeding, operates as a stay, applicable to all entities, against all actions by creditors and other interested parties against the debtor or property of the debtor,³⁸⁴ except for the limited exceptions set forth in 11 U.S.C. § 362(b). For the stay to be effective, it is not necessary that actual notice of the stay or the filing of the case be given.

2. Actions Stayed

The stay is effective against:

• the commencement or continuation, including the issuance or employment of process, of a judicial, administrative or other action or proceeding (1) against the debtor that was or could have been commenced before the commencement of the case, or (2) to recover a claim against the debtor that arose before the commencement of the case;³⁸⁵
• the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case;³⁸⁶
• any act to obtain possession of property of or from the estate, or to exercise control over property of the estate;³⁸⁷
• any act to create, perfect or enforce any lien against property of the estate;³⁸⁸
• any act to create, perfect or enforce against property of the debtor any lien to the extent that the lien secures a claim that arose before the commencement of the case;³⁸⁹
• any act to collect, assess or recover a claim against the debtor that arose before the commencement of the case;³⁹⁰
• set-off of any debt owing to the debtor that arose before the commencement of the case against any claim against the debtor;³⁹¹ and
• commencement or continuation of a proceeding before the U.S. Tax Court concerning a debtor tax obligation for a tax year that ended pre-petition.³⁹²

3. The Co-Debtor Stay

In a proceeding under chapter 13, the filing of a petition also operates as a stay of actions against a co-debtor to collect on a consumer debt.³⁹³ A creditor may move for relief from the co-debtor stay.³⁹⁴

4. Actions Taken in Violation of the Stay

A majority of the courts have held that an act taken in violation of the stay is void.³⁹⁵ In these courts, it is unnecessary to take any action to invalidate the act. In districts in which a stay violation is considered voidable, not void, the debtor must take affirmative steps to invalidate the act.

5. Duration of the Stay

Unless the stay is terminated by the court upon motion of an interested party or as otherwise provided in 11 U.S.C. § 362, a stay remains in effect until certain events occur.

a. As to Property of the Estate

The stay is effective against property of the estate until such time as it "is no longer property of the estate."³⁹⁶ In a chapter 7 case, property ceases to be property of the estate when it has been disposed of by the trustee either by sale or abandonment.³⁹⁷Property that is scheduled and not administered by the trustee is abandoned unless the court orders otherwise.³⁹⁸ Property that is not abandoned and not administered remains property of the estate unless the court orders otherwise.³⁹⁹

b. As to Other Acts

The stay remains in effect until the earliest of the time the case is closed, the case is dismissed, or a discharge is granted or denied.⁴⁰⁰

B. Exceptions to the Automatic Stay

There are several exceptions to operation of the automatic stay, most of which are highly specialized and not applicable to consumer cases. The exceptions most likely to affect consumer cases include:

a. the commencement or continuation of a criminal action or proceeding against the debtor;⁴⁰¹
b. domestic or family law civil actions, including commencement or continuation of an action or proceeding for:⁴⁰²

i. the establishment of paternity;

ii. the establishment or modification of an order for domestic support obligations;
iii. child custody or visitation;
iv. actions concerning domestic violence;
v. dissolution of a marriage, except to the extent the proceeding seeks to divide property that is property of the estate;
vi. t he collection of a domestic support obligation from property that is not property of the estate; or
vii. continued withholding of a domestic support obligation under a court or administrative order;

c. an action to withhold a driver's or occupational license for failure to pay a domestic support obligation;⁴⁰³
d. reporting overdue child support payments to a credit reporting agency;⁴⁰⁴
e. interception of a tax refund as a result of failure to pay a domestic support obligation;⁴⁰⁵
f. an audit by a governmental unit to determine tax liability;⁴⁰⁶
g. the issuance to the debtor by a governmental unit of a notice of tax deficiency;⁴⁰⁷
h. a demand for tax returns;⁴⁰⁸
i. an assessment of any tax and issuance of a notice and demand for payment of such an assessment (but any tax lien that would otherwise attach to property of the estate by reason of the assessment will not take effect unless the tax debt will not be discharged in the case and the property or its proceeds to which the lien attaches are retained by the debtor at the conclusion of the case);⁴⁰⁹
j. any act by a lessor under a lease of nonresidential real property to the debtor that has terminated by the expiration of the stated term of the lease to obtain possession of such property;⁴¹⁰
k. 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;⁴¹¹
l. the continuation of any eviction, unlawful detainer action or similar proceeding by a lessor against a debtor involving residential property in which the debtor resides as a tenant under a lease or rental agreement and the lessor has obtained a pre-petition judgment for possession of the property;⁴¹²
m. an eviction action that seeks possession of the residential property in which the debtor resides as a tenant under a lease or rental agreement based on endangerment of, or the illegal use of controlled substances on, the property;⁴¹³ and
n. an act to enforce any lien against or security interest in real property:

i. within two years following the entry of an order for relief from the stay entered under 11 U.S.C. § 362(d)(4); however, a debtor in a subsequent case may move for relief from such order based on changed circumstances or for other good cause shown after notice and a hearing;⁴¹⁴ or

ii. an act to enforce any lien against or security interest in real property in a case where the debtor is ineligible to be a debtor in a bankruptcy case under 11 U.S.C. § 109(g), or filed the bankruptcy case in violation of an order issued in a prior bankruptcy case prohibiting the debtor from being a debtor in a subsequent bankruptcy case.⁴¹⁵

C. Litigating Violations of the Automatic Stay

1. Willful Violation

A violation of the automatic stay may occur if the act is intentional and the actor has knowledge, via either actual or constructive notice, that the debtor filed a bankruptcy petition. The determination of whether a violator had actual or constructive notice is a fact-intensive inquiry.

2. Sanctions

If the party injured by a violation of the automatic stay is an individual, the court must award actual damages, including costs and attorney's fees, and, in appropriate cases, punitive damages.⁴¹⁶ An award is limited to just actual damages if the creditor believes in good faith that the stay has automatically terminated pursuant to 11 U.S.C. § 362(h).⁴¹⁷ Monetary sanctions may not be imposed on a creditor if effective notice is not given in accordance with 11 U.S.C. § 342.⁴¹⁸

D. Relief from Stay

Upon request of a party in interest and after notice and hearing, the court may terminate, annul, modify or condition the stay.⁴¹⁹

1. Grounds

The grounds for relief from the automatic stay are (1) "cause," including a lack of adequate protection, or (2) that the debtor lacks equity in property that is not necessary to an effective reorganization.⁴²⁰ In addition, relief from the codebtor stay...