Almost all attempts by creditors to collect debts are immediately stopped when you file bankruptcy. But here are some special exceptions.
Here’s a one-sentence summary of today’s blog post:
The “automatic stay” gives you crucial protection from creditor collections as soon as your bankruptcy case is filed, with some limited exceptions in 1) criminal matters, 2) certain domestic relations (family court) procedures, 3) child and spousal support obligations and procedures, and 4) certain income and business tax collection.
The “Automatic Stay”
The immediate stopping of collections—called the “automatic stay”—is one of the most important benefits of filing bankruptcy.
It’s automatic in that it‘s put into full effect by the act of filing bankruptcy itself. The automatic stay doesn’t need any action by a bankruptcy judge or any other procedure to become effective.
Its purpose is to stay, or stop, all collections, to give you a break and to even the playing field among your creditors.
Because the automatic stay is a benefit that you count on so much, you need to understand its exceptions—situations in which a creditor can continue to act in spite of your bankruptcy filing.
Rarely, the automatic stay can be canceled as to ALL creditors 30 days after the case is filed, or the automatic stay may not go into effect at all when the case is filed. These can occur if you filed a prior bankruptcy case, or more than one in the latter situation, and it was/they were dismissed (thrown out) within a year before the new case you’re filing.
Also, any creditor can challenge the appropriateness of the automatic stay as to any action that it would like to take, if it has grounds to do so.
But these are not the kind of exceptions we’re talking about here. Instead there are certain kinds of creditors with certain actions that a bankruptcy filing’s automatic stay does not stop at all.
1. Criminal Matters:
A district attorney or other governmental authority can start or continue a criminal case against you without any regard to your bankruptcy case. This includes all steps of a criminal case against you: indictment, trial, sentencing, and any penalties including fines and incarceration.
Realize that this exception doesn’t just apply to more serious crimes like misdemeanors and felonies. It can also apply to relatively minor matters that you might not consider “criminal,” such as traffic infractions. Whether these are considered “civil” or “criminal” violations can depend on the laws that create them, so it might not be clear whether the automatic stay applies to a particular low level illegal behavior.
The line between criminal and civil proceedings, between criminal and civil debts, and thus whether the automatic stay applies, can be unclear when one behavior can have both criminal and civil elements. Consider an employee’s embezzlement, a business’ illegal disposal of its hazardous waste, or a bar fight. Each of these could result in either criminal charges or civil claims, or both, with one not covered by the automatic stay and the other covered.
2. Domestic Relations Procedures:
The automatic stay does not apply to your ex-spouse, or about-to-be ex-spouse, or someone on his or her behalf starting or continuing these kinds of proceedings:
establish the paternity of a child
determining or changing the amount of child or spousal support to be paid
resolving child custody or visitation issues
addressing domestic violence disputes
dissolving a marriage (but not to determine how assets or debts are to be divided between the spouses)
3. Collection of Child or Spousal Support:
Ongoing monthly support payments can be collected by the ex-spouse, directly or through support enforcement agencies, regardless of the bankruptcy stay of any kind of bankruptcy filing.
Past due support payments can also start or continue to be collected, regardless of a Chapter 7 filing. This collection can include paycheck withholdings, garnishment of bank accounts, seizure of a tax refunds, suspension of a driver’s licenses (both regular and commercial), and often even the suspension of virtually all other licenses issued by the government, including suspension of occupational and professional licenses.
In contrast, a Chapter 13 filing CAN stop these aggressive methods of collecting past due support payments as long as you strictly follow a number of steps. Most importantly, you must start making the regular support payments that become due after you case is filed, arrange to pay the past due support in full through the Chapter 13 payment plan, and then actually pay everything as proposed.
The automatic stay does not stop the taxing authorities from:
starting or finishing a tax audit
sending you a notice that you owe taxes
demanding that you file your tax returns (but not that you pay any tax owed)
assessing your taxes and sending a notice of the tax owed (but doing no more to collect)
Remember: the automatic stay stops almost all actions against you by almost all creditors. But if you are involved in court proceeding or collection efforts by the criminal or taxing authorities, or by an ex-spouse or support enforcement agency, be sure to talk with your attorney about whether any of the exceptions apply.