Asian Journal- The Filipino-American Community Newspaper

QUESTION: I have just filed for Bankruptcy. Can you let me know what exactly is the Automatic Stay?

Answer:Typically a debtor has already been sued or threatened with legal action by creditors by the time a voluntary petition is filed. The debtor may have been subjected to wage garnishments or other judicial processes employed in the collection efforts of creditors. In order to relieve the financial pressures that caused the debtor to seek bankruptcy relief, the Bankruptcy Code provides that the filing of the petition results in an automatic stay of certain actions. This stay, which arises by operation of law and requires no judicial action, halts the collection of claims and protects the debtor from further harassment by creditors. It is one of the most fundamental and significant debtor protections under bankruptcy law. The automatic stay prevents a creditor from pursuing remedies against the debtor’s assets to the detriment of other creditors and allows the debtor some breathing room. If the speediest creditors were permitted to continue to grab the debtor’s property after the bankruptcy case had commenced, an orderly liquidation and an equitable distribution of the estate to creditors would be frustrated.

Answer: The automatic stay is not intended to alter the substantive rights of creditors, but merely stops collection efforts pending a determination by the bankruptcy court of the creditors’ and the debtor’s rights. It does not stay the running of statutory time limitations, except as they are altered by § 108 of the Bankruptcy Code. Moreover, the stay is not available to some serial filers, its duration is limited with respect to others, and it can be terminated if a debtor fails to file a statement of intention and perform on that intention in a timely fashion.

Answer: The automatic stay is very broad in scope.The automatic stay prevents a creditor from commencing or continuing a proceeding against the debtor that was, or could have been, commenced before the filing of the bankruptcy petition, or commencing or continuing a proceeding to recover a claim against the debtor that arose before the filing of the bankruptcy petition. This includes any judicial, administrative, or arbitration proceeding, whether or not it is before a governmental tribunal. The stay, however, does not bar a party from commencing actions against the debtor in the bankruptcy court where the petition is pending. The stay applies to every step of the proceeding, including the issuance of process, trials, levy, garnishment, appeals, and postjudgment proceedings. However, postponement of a foreclosure sale and continuation to a new sale date after the debtor has filed a bankruptcy case has been found not to violate the automatic stay. The automatic stay against continuation of an action against the debtor does not prevent the debtor from proceeding on a counterclaim. "Section 362 by its terms stays proceedings against the debtor. The statute does not address actions brought by the debtor which would inure to the benefit of the bankruptcy estate."

The Code also stays the enforcement of a judgment against the debtor or against property of the estate, which was obtained before the petition was filed. Simply stated, creditors may not proceed with levy or execution to satisfy the prebankruptcy judgment.[FN15]

One of the broadest aspects of the stay is set forth in § 362(a)(3), which provides that the commencement of a bankruptcy case stays actions to obtain possession of or to exercise control over property of the estate or property from the estate. Property of the estate includes all the debtor’s legal and equitable interests in property as of the date of the petition. The meaning of the prohibition against control over "property from the estate" has been held to include acts to obtain all property in which the estate has an interest or which it possesses, whether or not the bankruptcy estate has lawful title. The stay prevents such efforts to obtain property of or from the estate so as to give the estate representative ample time to discover and evaluate the estate’s rights in the property. Any attempt to collect or recover on a claim against the debtor that arose before the bankruptcy petition was filed is also covered by the automatic stay.

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Brian D. Lerner is a Bankruptcy Attorney. He is admitted to the California Supreme Court. This firm handles bankruptcy cases in California. This firm will prepare Chapter 7 and 13 cases. Additionally, we can help with the Loan Modification process. We will fight in Bankruptcy Court for your rights. An appointment can be made by calling (866) 495-0554 or (562) 495-0554. The Firm website is www.ebankruptcyatty.com.

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( Published October 17, 2009 in Asian Journal Los Angeles p. C6 )