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     Under Bankruptcy Code Section 362(a), filing bankruptcy immediately and automatically stops most creditor action against the debtor. It is one of the most powerful weapons in the debtor's defense arsenal against creditor action. The debtor does not have to do anything other than file the case and list his creditors. This is different from other courts, where the person seeking relief needs to affirmatively obtain an order from the court restraining or enjoining action by another party.



The Creditor

     The Bankruptcy Court takes care of sending out the notice of the filing, and the stay goes into effect even if the creditor is not notified. Creditors are stopped from proceeding with collection lawsuits, crippling wage garnishments and bank account levies, foreclosures, repossessions, any attempts to seize or put liens on the debtor's property, and any and all collection efforts, including letters, phone calls, or other contacts. Violation of the automatic stay can give rise to rights by the debtor against the creditor for damages.

 

Stops the IRS

     The automatic stay stops the IRS and other tax entities from taking debtor's property post-bankruptcy, and in effect "freezes" thelien, so that it only applies to the assets the debtor had on the bankruptcy filing date.

Exceptions

     The debtor's attorney should carefully review the debtor's situation before filing a bankruptcy case, to make sure that the automatic stay even applies to the situation confronting the debtor. This is because there are 28 exceptions to the automatic stay, found in Bankruptcy Code Section 362(b). The more common exemptions include;

  • Criminal actions
  • Paternity suits
  • Establishing or modifying domestic support obligation orders
  • Child custody or visitation matters
  • Marital dissolution actions (except as they may relate to property division)
  • Collection of domestic support obligations
  • Tax audits
  • Actions by a lessor of nonresidential real property to evict the debtor where the lease expired by its terms before the bankruptcy filing
  • Eviction actions involving residential real property where the lessor obtained an eviction judgment before the bankruptcy case was filed

Written by Henry Rendler





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