The Automatic Stay

• Author: Gregory Germain
• Pages: 114-119

114

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. §

362(a).

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

stay:

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

administrative freeze).

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.”?