The “automatic stay” in a bankruptcy case, also known as a “bankruptcy stay,” is an injunction that immediately “stays,” or halts, actions by creditors to collect debts from a debtor who has declared bankruptcy. The automatic stay is “automatically” initiated as soon as the filer submits their bankruptcy petition to the court, thereby giving debtors some extra time to sort out their finances.
This makes the automatic stay one of the most powerful tools when filing for bankruptcy. It prevents your creditors from garnishing your wages, repossessing your car, or seizing your property without the court reviewing your situation. It also stops foreclosure, eviction, and most other legal proceedings from moving forward.
Finally, the automatic stay stops debt collectors and creditors from calling, emailing, or harassing filers for unpaid credit cards and other unsecured creditors. Once you file for bankruptcy, creditors must go through the bankruptcy process and cannot seek to collect on their debts until the court has determined the rights of everyone involved.
How the Automatic Stay Protects You
Automatic stay provisions protect the debtor against certain actions from the creditor, including:
- The beginning or continuing of judicial proceedings against the debtor.
- Actions to obtain the debtor’s property via repossession, foreclosure, garnishment, or levy against an asset like a bank account.
- Actions to create, perfect, or enforce a lien against a debtor’s property.
- The set-off of indebtedness owed to the debtor before the commencement of bankruptcy proceedings. “Set-off” simply means that a creditor to whom you owe money can “set off” the debt owed by seizing property they hold for you, such as your bank seizing checking account funds for credit card debts owed to the same bank.
Exceptions to the Automatic Stay
While the stay starts as soon as the debtor submits their bankruptcy petition to the court, a court can still granta creditor relief from the stay. This may happen, for example, if the creditor can show that the stay does not give the creditor “adequate protection” or if it jeopardizes the creditor’s interest in a certain property. The court may give relief to the creditor in the form of periodic cash payments or an additional or replacement lien on the property.
In 1994, Congress was concerned that debtors may exploit some of the advantages of automatic stay provisions and put in place additional exceptions to the automatic stay. These provide some relief to certain creditors, such as creditors having a secured interest in a single real estate asset, like the bank holding your mortgage. Congress required that debtors in this situation either file a Chapter 13 plan that has a reasonable chance of being accepted within an appropriate amount of time or make monthly payments to each such secured creditor in the amount equal to interest at a current fair market rate on the value of the creditor’s real estate.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”), which revised the United States Bankruptcy Code for cases filed on or after October 17, 2005 . The BAPCPA reformed the personal bankruptcy process in the U.S. and introduced more stringent guidelines and eligibility requirements for declaring Chapter 7 bankruptcy.
Most notably, the BAPCPA added two more exceptions to the automatic stay provisions, concerning landlords seeking to evict tenants. First, any eviction proceedings in which the landlord obtained a judgment of possession (eviction) prior to the filing of the bankruptcy petition may be continued, meaning that the eviction judgment is enforceable and you may be evicted even if you are in bankruptcy. Second, eviction proceedings filed after bankruptcy proceedings are exempt if the proceeding involves evicting the tenant on the basis of using illegal substances or “endangerment” of the property.
Certain additional restrictions were also added to the automatic stay, or § 362(2), the relevant section of the United States Bankruptcy Code. Ordinarily, the automatic stay continues throughout the entirety of the bankruptcy case. However, if the debtor has had a previous case dismissed within the past year, the automatic stay for the second case of the year is only 30 days, unless the debtor obtains an order extending it within that 30 days. If the debtor had two cases dismissed in the year before filing, the automatic stay does not go into effect unless the debtor files a motion. In other words, for the first case filed, the automatic stay generally lasts for the whole case, absent any motions to lift it for a specific creditor or asset (known as a “lift stay” motion). On the second filing of the year, the stay is shortened to 30 days, and the third time around, there is no stay without the court specifically granting it.
This is done in order to prevent abusive filings, where a debtor simply files bankruptcy a day or two before having a house, car, or other asset auctioned off. The first time around, filing for bankruptcy might work for several months until the case is dismissed. The second time, the protection is only for a month (30 days), and the last time, there is no such protection. Of course, if someone represented themselves twice and was dismissed for not knowing their way around court, a seasoned attorney can help with the third filing and obtaining the automatic stay for the duration of the third bankruptcy filing, as well as making sure the “third time’s a charm” and the debtor obtains the discharge they failed to get in the first two attempts.
Automatic Stay Applicability and Limitations
As mentioned above, the automatic stay requires all collection proceedings to cease. Although there are limited exceptions, this is the “relief” from collection proceedings a debtor is granted by filing bankruptcy.
In view of the fact that bankruptcy may, for example, effectively stop foreclosure, eviction proceedings, and other such types of creditor actions against debtors, there are cases of debtors who choose to file bankruptcy cases repeatedly, mainly in order to stall such proceedings. These multiple filings, especially when made within a short period of time, may be suggestive of an effort to manipulate the system. Therefore, these cases are generally regarded as improper uses of the bankruptcy system—which BAPCPA seeks to address—and courts remain vigilant against such occurrences.
BAPCPA placed certain limitations on the protections provided by the automatic stay when it comes to certain re-filed cases . Revised § 362(c)(3) stipulates that if the debtor files a Chapter 7, 11, or 13 case within one year of the dismissal of an earlier case, the automatic stay in the present case terminates 30 days after the filing unless the debtor or some other party in interest files a motion and demonstrates that the present case was filed in good faith with respect to the creditor, or creditors. If the present case is the third filing within one year, the automatic stay does not go into effect at all, unless the debtor or any other party in interest files a motion to impose the stay that demonstrates that the third filing is in good faith with respect to the creditor, or creditors. This sometimes occurs when someone attempts to file a bankruptcy on their own, in good faith, and does it incorrectly—leading to a dismissal—and then comes back for a second or third attempt with a lawyer.
Generally, however, it is presumed that repeat filings are not filed in good faith. Accordingly, parties seeking to impose an automatic stay under such circumstances are called to refute this presumption on the basis of clear and convincing evidence. A notable exception to this presumption is found under § 362(i), whereby the presumption of repeat filing not being made in good faith would not arise in a “subsequent” case if a debtor’s prior case was dismissed “due to the creation of a debt repayment plan,” where a settlement, the repayment plan between the debtor and the creditor, was the reason for dropping the bankruptcy case.
In addition to the above, by virtue of § 362, the applicability of the automatic stay was also limited with regard to eviction proceedings. As a consequence, a stay shall not stop the eviction proceeding in instances where a judgment of possession has been obtained by a landlord before a bankruptcy case is filed. Likewise, for cases where an eviction is based on “endangerment” of the rented property or “illegal use of controlled substances,” the stay is also not applicable.
In such situations, certain formalities need to be observed by the landlord, who needs to file and serve a certificate of non-applicability of the stay to the debtor, which is a document setting out the facts giving rise to one of the exceptions. The assertions made in the certificate may be contested by the debtor, while in certain states—including New York—an additional right to cure the default, even after an order for possession, may be available to debtors.
Lastly, exceptions to the automatic stay provided by § 362 also include criminal cases and certain paternity, child custody, domestic violence, and domestic and child support proceedings, meaning that it has effectively made it easier to exclude certain non-monetary proceedings and the collection of special classes of monetary proceedings from the protections of the automatic stay.
More Stringent Notice Requirements
Under the new, stricter notice requirements put forward by § 362, debtors are under obligation to give notice of the bankruptcy to the creditor at an address filed by the creditor with the court, or at an address stated in two communications from the creditor to the debtor within 90 days of the filing of the bankruptcy case. Additionally, the notice must also include the account number used by the creditor in the two relevant communications. In view of the above, creditors are protected from monetary penalties for violating the stay in cases where the debtor has not given “effective” notice, whereas such ineffective notice may be cured if the notice is later brought to the attention of the creditor. An experienced lawyer will review your “creditor matrix,” the list of your creditors and their contact information, to make sure you meet the notice requirements.
By expanding the range of exceptions to discharge, BAPCPA effectively extended the protection afforded to creditors, as stipulated by the amended provisions of § 523, which lays out the exceptions to discharge in bankruptcy, meaning which debts will not be wiped out. Previously, the court would look back 60 days at any inappropriate transactions that could be seen as “running up the credit cards” just before filing for bankruptcy. BAPCPA extended the lookback period and reduced the amount of spending that would be considered excessive.
For instance, the presumption of fraud in the use of credit cards was expanded, so the amount that the debtor must charge for “luxury goods” in order to invoke the presumption was reduced from $1,225 to $500 . Accordingly, the amount of cash advances that would give rise to a presumption of fraud has also been reduced, from $1,225 to $750. At the same time, the period for review has been increased from 60 days to 90 days immediately before filing for bankruptcy, meaning that a presumption arises that any single purchase of $500 or more within 90 days of filing for bankruptcy was incurred fraudulently and is, thus, non-dischargeable in the bankruptcy. Prior to BAPCPA, only purchases of at least $1,225 made within 60 days of filing would have given rise to a presumption of fraud, so 90 days and $500 is obviously more favorable to creditors and harder on debtors than the previous standard.
Moreover, the Amendments introduced by BAPCPA have also broadened the types of educational (“student”) loans that cannot be discharged in bankruptcy, unless there exists proof of “undue hardship.” The nature of the lender is also less relevant, hence loans from “for-profit” or “non-governmental” entities are now more difficult to discharge, as well. Unfortunately, student loans are still difficult to discharge and doing so requires the debtor filing an offensive motion in what is known as an “adversary proceeding” to ask the court to rule the debtor’s student loan debt dischargeable.
Even though certain kinds of liens can be avoided in the context of Chapter 7 bankruptcy, this is another field where BAPCPA introduced further limitations to debtors’ ability to avoid liens through bankruptcy. For instance, there were changes in the definition of “household goods”: “electronic equipment,” for example, is now limited to one radio, one television, one VCR, and one personal computer with related equipment. At the same time, certain items such as works of art not created by the debtor or a relative of the debtor, jewelry worth more than $500 with adjustment for inflation (except for wedding rings), and motor vehicles are now expressly excluded.
It should be noted that the definition of household goods before the changes made by BAPCPA was broader, which meant that a wider range of items could have been included.
Homestead exemption limits
In accordance with the provisions under § 522, which sets forth the property that may be exempted from the bankruptcy estate (protected from being seized and sold), the homestead exemption, which allows bankruptcy filers in some states to exempt the value of their homes from creditors, is limited in various ways. Therefore, debtors filing for bankruptcy who acquired their home less than 1,215 days (40 months) before filing, or those who have been convicted of security law violations or been found guilty of certain crimes, may only be exempt up to $125,000 (adjusted periodically), irrespective of a state’s exemption allowance. In New York City and surrounding areas, the State’s homestead exemption is much higher than $125,000, so this could impact someone who recently purchased a home or committed one of these crimes. Moreover, individuals filing for bankruptcy must also have lived in the state for at least 730 days (2 years) before they are allowed to use their state’s exemptions. This prevents people from “forum shopping” by simply relocating to a state with more advantageous bankruptcy exemptions. Nevertheless, if the property is deemed reasonably necessary for the support of the debtor and any dependent of the debtor, an exemption may still be allowed to apply to it.
The above limitations were mainly put in place as a means of preventing forum shopping when it comes to filing for bankruptcy by, for example, moving assets or relocating to a state with more favorable exemptions and immediately filing there.
By nature, exemptions set out how much property debtors may protect from liquidation to pay creditors. Each state has exemption laws in place defining the amount of property that can be protected from creditor collection action within the state. At the same time, federal statutes stipulate exemptions in federal cases. For bankruptcy cases, states are allowed, by statute, to opt out of the federal exemption scheme. The states that have opted out do not allow their residents to choose the federal bankruptcy exemptions and only the state law exemptions are available. However, New York is not one of those states, and New York filers can use either the federal or state exemptions, whichever suits them best.
Additional Requirements for Bankruptcy Filers
The BAPCPA Amendments have added a number of new requirements for bankruptcy filers, which effectively make the process of filing for bankruptcy more difficult and costly. These additional requirements include:
- More extensive filing requirements and additional fees.
- Increased attorney liability and costs.
- More compliance requirements for small businesses.
- An increased amount of debt repayment under Chapter 13.
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 All amounts are as of 2022