Automatic Stay: a Deep Dive

I wanted to see how much I knew about the automatic stay besides it’s general parameters so I opened section 362 and realized that at 6,518 words, section 362 is the longest section in the Code broken up into 15 parts (a-o).   There are 8 things that are “stayed” followed by 28 things not stayed.  Below are parts a-k for now and the rest to follow.  Pop quiz — I discovered a way to invoke the powers of the “stay” without ever filing bankruptcy (that’s my next blog post).

Let’s take a deep dive into the labyrinth:

Part (a) – 8 things that are Stayed 

  1. Commencement or continuation of any action against the debtor that could have been commenced prepetition;
  2. Enforcement of prepetition judgment
  3. Obtain possession or exercise control over property of the estate
  4. Recover re: lien against property;
  5. Recover re: prepetition secured claim
  6. Recover prepetition claim
  7. Set off
  8. US Tax Court re: corporate debtor re: tax liability

Part (b) has 28 things that are Not Stayed

  1. Criminal stuff
  2. Civil family law stuff (paternity, divorce, DSO, child custody)
  3. interest in property to the extent that trustee’s rights under 546(b) and 547(e)
  4. Government police power re: action under Chemical Weapons Act from 1993
  5. Repealed
  6. “Wall St. Person/Institution” right under security agreement re: rights under commodity/forward/securities K
  7. “Repo or Financial Participant” (someone who has a repurchase K with debtor) from acting under that K
  8. HUD to foreclose on HUD insured 5+ units property
  9. Gov’t to audit tax liability / determine tax deficiency / demand tax return
  10. Commercial landlord to evict and obtain possession of property from prepetition terminated lease.
  11. Presenting and protesting negotiable instruments
  12. After 90d postpetition, allow Transportation Secretary to get final judgment against chapter 11 debtor to foreclose a ship or fleet mortgage re: a vessel.
  13. After 90d postpetition, allow Commerce Secretary to do the same as # 12.
  14.  Accreditation of debtor as school.
  15. State licensing body re: licensing debtor as school
  16. Secretary of Education re: eligibility of debtor to participate under Higher Education Act.
  17. “Swap participant” to participate or offset under K.
  18. Gov’t to get statutory lien for ad volerm property tax on real property for postpetition due taxes.
  19. Debtor’s employer to w/hold wages per K for pension, stock, profit-sharing, 401k if amount is for payments re: loan from retirement account.
  20. Enforce lien against real property after (d)(4) relief from stay for 2 years [so allows to record lien in subsequent debtor’s cases];
  21. Enforce lien against real property if debtor is ineligible debtor or case filed in violation of bk court order.
  22. Residential landlord to evict or continue UD action if landlord has obtained a prepetition eviction judgment
  23. Residential landlord to evict debtor-tenant engaged in illegal use of property (drugs, etc)
  24. Transfer that is not avoidable under 544 and 549.
  25. Securities regulatory body to enforce action (other than monetary sanction), including delist/refuse stock.
  26. Gov’t to setoff of income tax for prepetition tax liability
  27. “Master netting participant” of K right under security agreement to offset or transfer obligation;
  28.  Health & Human Service Secretary to prevent debtor from participate in Medicare and Social Security program 

Part (c) Duration of Stay

  1. Until property is no longer property of the estate
  2. Until either case is closed or dismissed or discharge
  3. If 1 case in prior year by individual (but dismissed) then 30th day postpetition
  4. If 2+ cases in prior year by individual (dismissed), no stay unless requested

Part (d) has 4 Categories re: How to Get Relief from Stay

  1. For “cause” (lack of adequate protection, state court proceeding, etc);
  2. No equity in property and not necessary for reorganization
  3. If SARE, debtor has 30 days to file plan and proceed quickly or else stay lifted after 90 days.
  4. Petition filed to delay, hinder, defraud re: transfer of interest in real property w/o approval or multiple bk filings.

Part (e) When Court Must Respond Re RFS: Court must hold hearing on MFR filed w/in 30 days after filing or else the stay is terminated; and in individual debtor cases, stay is terminated after 60th day of filing unless parties stip / court order / time extended.

Part (f) emergency RFS – emergency relief from stay to prevent irreparable damage (extreme remedy).

Part (g) burden – burden of proof on moving party re: debtor’s equity in property and on opposing party re: everything else.

Part (h) personal property – no stay against personal property if debtor does not timely file statement of intention, does not take action per the statement of intention.

Part (i) subsequent case presumed not to be in good faith if prior case is dismissed due to creation of debt repayment plan for purposes of section (c)(3) above [if 1 case is dismissed within last year].

Part (j) court must enter an order confirming the automatic stay have been terminated under section (c) above.  It is not automatic.

Part (k) sanctions (actual damages, costs/fees, sometimes punitive) to individual debtor caused by willful violation of stay.  If an entity violates in good faith, then recover limited to actual damages.

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