Continued from The Magic of the Automatic Stay

Many legal writers have observed that the purpose of the stay is to provide a “breathing spell” while the facts in a bankruptcy case are sorted out. Each statutory provision controlling the specific stay relief that arises automatically upon the filing of a bankruptcy petition is set out in Section 362(a) of the Bankruptcy Code and collectively prohibits any collection by a creditor for any claim against the debtor or the debtor’s property which arose before the petition was filed. Some of the stay relief provisions overlap. So, what is stopped?

  1. Lawsuits and administrative hearings are stopped
  2. Enforcement of any pre-petition judgment against you is stopped — including any garnishment of your wages or bank account, and it protects other assets like a paid-off vehicle. Also, if necessary, your stay can be used to reinstate your driver’s license if it has been suspended by the DMV in order to enforce a judgment against you, for example, a judgment by Ford Motor Credit Co. for a repossession or Capital One for a credit card
  3. Any act to obtain possession or exercise control over your property (think garnishment, repossession or foreclosure) is stopped
  4. Any act to create, perfect or enforce a security interest, statutory lien or judicial lien against “property of the estate” is stopped. (This broad protection stops the enforcement of any lien on your residence, your vehicle, your bank account or other property.)
  5. Any act to create, perfect or enforce a security interest, statutory lien or judicial lien against “property of the debtor” securing any pre-petition claim is stopped. (Certain property is excluded from “property of the estate” by statute or by court decision. Also, certain property that normally would be “property of the estate” may be exempted or removed from the estate. That excluded or exempted property becomes property of the debtor, not property of the estate and is specifically shielded from collection by the creditors by 362(a)(5)
  6. Any act to collect, assess or recover a claim against you is stopped. (This stops all contact by a creditor, including harassing telephone calls or calls to your employer or to a neighbor to attempt to collect a debt you owe. Section 362(a)(6) even stops the presentment at the bank or credit union for payment of any check written by you before your petition is filed. Due to a public policy favoring freedom of commerce, however, 362(b)(11) overrides the automatic stay and allows your check to be presented and cashed or dishonored by the bank or credit inion if funds are not available. Also due to public policy favoring the filing of tax returns for pre-petition tax periods and a determination of pre-petition tax liability, 362(b)(9) also overrides the automatic stay
  7. Any attempt to set off a pre-petition debt is stopped. (Setoff may come into play if you owe a bank or credit union money and, when your petition is filed, the bank also owes you the funds you have on deposit! The U.S. Supreme Court has ruled that a temporary freeze of your deposit does not violate the stay because the freeze is not a permanent settlement of the rights to the fund, so long as the bank or credit union files a motion to determine these permanent rights. Your attorney can assist you with a strategy that can avoid this potential problem. Also, you will find that taking authorities like IRS and the Georgia Department of Revenue operate under different rules of setoff (or offset) which your attorney can explain and which is discussed in Part III. Stay tuned!