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When the Automatic Stay in Bankruptcy Does Not Apply

The Limits of Your Legal Protection in Bankruptcy

When the Automatic Stay in Bankruptcy Does Not ApplyOne of the most attractive features of American bankruptcy law is the “automatic stay” that goes into effect immediately upon filing of a bankruptcy petition. It generally prohibits creditors from calling, writing, filing legal action, or otherwise attempting to collect a debt except through the bankruptcy process. But the automatic stay does not apply to all legal actions—only those to collect a debt.

Legal Matters Not Affected by Bankruptcy Filing

A number of legal issues are not stayed by a bankruptcy filing:

  • Legal action to execute a lien on property—A bankruptcy proceeding addresses only the underlying debt and does not prohibit a lienholder from exercising his or her rights to enforce the lien.
  • Criminal prosecutions—In general, criminal prosecutions are not affected by a bankruptcy petition. For example, you can’t avoid prosecution for embezzlement by filing bankruptcy (and you can’t discharge an obligation to repay embezzled funds). There are exceptions, though. If you have a debt arising from the destruction or damage of government property, or if you have received an overpayment of certain government benefits, the stay may apply.
  • Family law proceedings—Child support and alimony may not be discharged or reorganized in bankruptcy. You can, however, restructure a divorce property settlement in a Chapter 13 proceeding.

A creditor may file a petition with the court to remove the stay in the “interests of justice.” For example, a real estate lender may seek to lift the stay to allow a foreclosure proceeding to move forward if it can be shown that the property value is likely to decline substantially before the bankruptcy is completed. Also, a landlord may ask the court to allow an eviction proceeding to continue, provided the eviction was initiated before the bankruptcy petition was filed.

Contact Attorney Howard N. Sobel

At the office of Howard N. Sobel, we work closely with people who have questions or concerns or are considering filing a bankruptcy petition. Contact our office online or call us at 856-424-6400 to see if you qualify for a free initial consultation. Evening and weekend appointments can be arranged upon request. We accept all major credit cards.

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