The Automatic Stay

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Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

The Automatic Stay

Filing bankruptcy triggers an automatic stay, a procedural device that plays an important role in the bankruptcy process. The automatic stay is triggered immediately upon the filing of a bankruptcy petition and substantially stops all acts and proceedings against the debtor and its property—this includes the exercise of remedies, litigation, collection efforts, and acts to create, perfect, and enforce liens. The automatic stay, however, only applies to prepetition events. In other words, the automatic stay only bars suits against the debtor with respect to claims made prior to the filing of the bankruptcy petition (or based upon prepetition conduct or events). Thus, it may not protect a debtor against a suit on a cause of action that arises based wholly on post-petition conduct.

The automatic stay is intended to protect both debtors and creditors; however, the primary purpose is to help the debtor. The stay provides the debtor both time and space free from the pressure and interference of creditors as they determine how to move forward. Secondarily, the stay generally benefits creditors by protecting the value of the bankruptcy estate as other creditors seek to get their share first. This allows the estate to be distributed in a manner that is both orderly and as fair as possible to all creditors.

The scope of the automatic stay is broad. It applies to all creditors, whether secured or unsecured, and to all of the debtor’s property, wherever located. It forbids creditors from pursuing both formal and informal actions and remedies against the debtor and its property. It also covers remedies that could be exercised outside of the US. However, consensual negotiations with the debtor are permissible.

The automatic stay is triggered by the filing of the bankruptcy petition and becomes effective without a court order and without notice to creditors. Subsequently, the stay is terminated automatically in two situations:

There are certain actions that violate the stay outlined in §362(a) of the Bankruptcy Code:

Courts disagree about whether or not inaction can violate the stay. The majority view, held by the Second, Seventh, Eighth, Ninth, and Eleventh Circuits, holds that inaction does violate the automatic stay. The minority view, held by the Third, Tenth, and D.C. Circuits, holds that it does not.

Despite the power of the stay, it is temporary (it may be lifted by the court under certain circumstances) and it is subject to certain limitations and exceptions. Some notable judicial limitations include:

There are 28 statutory exceptions outlined in Bankruptcy Code §362(b). Many of these exceptions only apply in very specific circumstances. Some notable exceptions include:

In order for a creditor to take any action listed under §362(a) and not listed in §362(b), a creditor must first obtain “relief from the stay.” Relief from the stay can be granted by request or on the court’s own accord. Relief from the stay is usually sought by secured creditors for various reasons. Relief can take many forms including: termination, annulment, modification, and conditioning. There are four grounds for obtaining relief from they stay:

If an individual is harmed by a willful violation of the automatic stay, the individual may recover actual damages and potentially punitive damages under Bankruptcy Code §362(k).

Creditors may occasionally attempt to have a debtor waive their right to an automatic stay prepetition. Courts balance several factors in determining the enforceability of such waivers.

 

For additional resources on bankruptcy topics, see Bankruptcy and DivorceBankruptcy Court Jurisdiction, and Tax Claims in Bankruptcy.

Bankruptcy Attorneys

If you need assistance in managing the bankruptcy process, Freeman Law can help clients navigate bankruptcy laws.  We offer value-driven services and provide practical solutions to complex issues.

Contact Freeman Law Contact us now or Schedule a consultation or call (214) 984-3410 to discuss your tax or bankruptcy concerns.

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