What is the automatic stay in bankruptcy?

The automatic stay under Section 362 of the Bankruptcy Code protects debtors from ongoing collection efforts (during the pendency of the bankruptcy case) against property included in the bankruptcy estate. Specifically, creditors are prohibited from the following conduct:

• efforts to collect, assess, setoff, or recover a claim against a debtor arising before the bankruptcy filing;
• commencing or continuing a judicial, administrative, or other action to collect the debt;
• enforcing a judgment against the debtors property;
• obtaining possession or control over assets included in the bankruptcy estate; or
• creating, recording, or enforcing a lien against the debtors property.
• Some limitations to the protections afforded under section 362 include:
• commencement or continuation of criminal actions and certain actions for domestic support;
• commencement or continuation of actions by governmental units pursuant to its regulatory power (such as tax liability); or
• creation or perfection of a statutory lien for certain types of real property.

The stay of proceeding will continue until the case is closed, dismissed, or discharge is granted. The court may also relieve or modify a stay generally or for a specific creditor for cause, for lack of adequate protection of a secured creditors interest, or if the debtor has no equity in the subject property and it is not necessary for the reorganization of the debtors estate. If a debtor violates a stay, any collection action can be undone. Further, if a debtor willfully violates the stay, the debtor may recover any attorneys fees incurred in challenging the collection action, as well as potential punitive damages.

Next Article: Proof of Claims in Bankruptcy Case Back to: BANKRUPTCY LAW