Chapter 6: The Automatic Stay
6.1. What is the automatic stay?
The automatic stay, 11 U.S.C. § 362, protects the debtor and the estate from the harassment
of collection actions during the bankruptcy case. The stay is very broad, prohibiting creditors from
doing or continuing most kinds of collection activity against the debtor or the estate. 11 U.S.C. §
Section 362(b) identifies certain acts that are not stayed, including criminal actions (11
U.S.C. § 362(b)(1)), certain family law proceedings (11 U.S.C. § 362(b)(2)), so-called “police and
regulatory powers” (buried in 11 U.S.C. § 362(b)(4)), and eviction actions against residential
tenants in certain situations (11 U.S.C. § 362(b)(22-23)).
The stay terminates automatically when the bankruptcy case is completed or the discharge
is issued (11 U.S.C. § 362(c)), and there are important provisions for creditors to obtain relief from
the automatic stay by motion (11 U.S.C. § 362(d)). We will cover relief from stay when we look
at claims and distribution in Chapter 8.
Creditors who violate the automatic stay are in contempt of court and subject to severe
penalties. See 11 U.S.C. § 362(k). The following problems explore the statutory language.
6.2. Practice Problems: The Automatic Stay
Read Section 362(a) and (b) and determine whether the following acts violate the automatic
Problem 1. Continuing a deposition of the Debtor scheduled before the bankruptcy case
was filed in a collection action against the Debtor.
Problem 2. The debtor was one of 100 defendants in an environmental lawsuit filed by a
private landholder prior to bankruptcy. On the eve of trial the debtor filed bankruptcy. May the
trial proceed? What can the plaintiff do to avoid a significant waste of time and money in its action
against all of the other defendants? See 11 U.S.C. § 362(d)(1).
Problem 3. On the day of bankruptcy, the debtor was in default under a car loan to
Syracuse Credit Union, and also had $1,000 in a checking account at Syracuse Credit Union. New
York law gives banks and credit unions a right to setoff money owing to the credit union by a
customer against money owing by the bank or credit union to the customer in the form of deposit
accounts. May Syracuse Credit Union exercise the right of setoff after bankruptcy? 11 U.S.C.
§ 362(a)(7). What should be bank do if the debtor asks to withdraw the $1,000 from her checking
account after bankruptcy? Citizens Bank of Maryland v. Strumpf, 516 U.S. 16 (1995) (allowing
Problem 4. A Credit card company sent the debtor her regular monthly invoice of charges
made during the prior month. Does it matter whether the credit card company received the
bankruptcy notice before sending the invoice? See 11 U.S.C. § 362(k). Does it matter that on the
back of the invoice, in small print, is the following language: “if the debtor has filed bankruptcy,
this is not an attempt to collect a debt but is merely a notice of the balance of the account.”?