Once you file for bankruptcy you are protected from your creditors by what is known as the automatic stay. The automatic stay prevents most of your creditors from continuing collection actions. That means they can’t call you, send bills or threatening letters, or take legal action against you. But there are exceptions to the automatic stay’s broad reach. In some situations and for certain types of creditors, the automatic stay does not apply or is limited.
Read on to learn more about exceptions to bankruptcy’s automatic stay.
(For more articles and Q&As on the automatic stay, see our Bankruptcy’s Automatic Stay area.)
If you have filed another bankruptcy case in the last year or had a case dismissed in the last year, the length and presence of the automatic stay may be affected. For details, see Exceptions to the Automatic Stay for Repeat Bankruptcy Filings.
The automatic stay does not prevent criminal proceedings from moving forward. If you are on trial for murder, bankruptcy is the probably the least of your concerns. But this also means that a criminal case based on writing bad checks could continue without violating the automatic stay. Although, if the creditor’s motive behind the criminal proceeding is simply to collect on a debt, that may be considered violation of the automatic stay.
Family Law Exceptions
Child custody, visitation rights, and domestic violence proceedings can continue without violating the automatic stay. These types of proceedings usually don’t have an impact on the bankruptcy anyway. Additionally, divorce proceedings are allowed to the extent that the divorce is not dividing property of the estate.
Domestic Support Obligations
Collection of domestic support (child support and alimony) gets special treatment in bankruptcy. The type of special treatment depends on whether you’ve filed for Chapter 7 or Chapter 13 bankruptcy.
Domestic support in Chapter 7 bankruptcy. In a Chapter 7 case, income you earn after you file for bankruptcy can still be collected to pay for domestic support.
Domestic support in Chapter 13 bankruptcy. In a Chapter 13 case, income you earn after you file is protected and your bankruptcy filing general stays actions to collect domestic support. However, depending on your state law, if you file for Chapter 13 bankruptcy, a person or entity might still be able to enforce a domestic support obligation by:
- Intercepting your tax refund
- forcing you to pay for medical care for the minor child (if that is one of your obligations), or
- suspending a state issued license.
In either Chapter 7 or Chapter 13, court proceedings can continue to establish paternity or to modify an existing domestic support obligation.
Retirement Account Loans
Withholding of wages to repay a retirement account loan is permitted and does not violate the automatic stay. So if you have a 401k loan, that repayment could continue to be withheld from your wages without violating the automatic stay. This exception is usually in the debtor’s interest; by permitting the continued withholding of these funds, it allows debtors to avoid the penalties and tax consequences for defaulting on such loans.
Many people are surprised to learn that the automatic stay prevents the IRS from collecting taxes. The IRS cannot issue a tax lien against your income or property while the automatic stay is in effect. However, the automatic stay will not prevent the IRS from auditing, demanding tax returns, or assessing taxes.
Residential Tenant Evictions
If you are facing eviction from a rental unit or home and you file for bankruptcy, the automatic stay does not apply in certain situations.
Judgment for possession. If the landlord already has a judgment for possession against you prior to the filing of the bankruptcy petition, then the automatic stay doesn’t apply. You can obtain stay protection for 30 days if you do two things:
- file a certificate stating that the judgment permits you to stay on the premises upon satisfaction of the judgment, and
- deposit with the bankruptcy clerk all rent that would be become due in the next 30 days.
Eviction for endangerment or drug use. If the landlord files a certificate with the court stating that an eviction is based on the tenant’s endangerment to the property or due to the illegal use of controlled substances by the tenant, the debtor has fifteen days to respond. If the debtor wins, the automatic stay will continue. If the debtor loses or does not respond, the automatic stay does not apply. (To learn more, see Will Chapter 7 Bankruptcy Stop an Eviction?)
Motion for Relief from Stay
Secured creditors can file a motion seeking relief from the automatic stay. This often happens when you are behind on your home mortgage payments. In the motion, the creditor asks the court to allow it to pursue or continue foreclosure proceedings. If you do not respond to this motion, the court will usually grant the creditor’s request and allow the foreclosure proceedings to continue. (To learn more about motions for relief from stay as well as how the automatic stay affects foreclosures, see our Automatic Stay area.)