Filing a bankruptcy stops every act by your creditors to determine or to collect their debts against you or your property. That is, except for those by certain kinds of creditors chasing very specific kinds of debts. Because this protection from your creditors—called the “automatic stay”—is usually such an effective and anticipated tool against your creditors, it’s very important to know when it doesn’t apply. The last thing you want is to count on a creditor being stopped only to find out that it isn’t.
Before getting into these exceptions, we emphasize that for most people the automatic stay DOES apply to ALL their creditors. In those cases the filing of their bankruptcy case DOES put a stop to ALL collection efforts by their creditors.
On the other hand, the kinds of debts NOT covered by the automatic stay are not that rare. You might have one of them. They include the following:
1) Criminal: If you owe a criminal fine or restitution, or have to pay probation or other ongoing crime-related fees, a bankruptcy filing does not affect your obligation to pay these. And if at the time your bankruptcy case is filed, you are in the midst of a criminal proceeding, that will continue, whatever stage it is at– indictment, criminal trial, or sentencing. This includes not just felonies and misdemeanors, but also lesser matters like traffic infractions that you might not think of as “criminal.”
2) Divorce and family court: Your ex-spouse, or about-to-be ex-spouse, or somebody on his or her behalf, can start or continue a variety of divorce and family court proceedings against you regardless of your bankruptcy filing. These include legal procedures to establish paternity of a child, determine or change the amount of child or spousal support to be paid, settle child custody or visitation issues, address domestic violence disputes, and even dissolve the marriage. A divorce case IS stopped by a bankruptcy to the extent that it deals with the division of property between the spouses—meaning the division of BOTH assets and debts.
3) Child or spousal support: If you owe ongoing support, no matter what kind of bankruptcy you file the person to whom you owe it can continue collecting it. If you owe back support AND file a Chapter 7 case, the person to whom you owe the support CAN STILL continue or start collecting it. This includes not only collection through wage withholdings and garnishment of bank accounts, but also through seizure of a tax refund and suspension of a driver’s license, an occupational or professional license, or even a hunting or other recreational license. In contrast, a Chapter 13 filing can stop these aggressive methods of collecting back support.
4) Taxes: Taxing authorities have to stop their collection efforts against you on taxes that you owe at the time your bankruptcy case is filed. However, your bankruptcy filing does NOT prevent them from starting or finishing a tax audit, sending you a notice that you owe taxes, demanding you to file your tax returns, or assessing your taxes.
These are by no means the only exceptions to the automatic stay, but are the most common. If you are involved in a court proceeding or are the target of collection efforts by the criminal or taxing authorities, or by an ex-spouse, be sure to tell us when you first contact us. These special creditors often have an influence on your best legal course of action, so we need to know about them quickly.