AUTOMATIC STAY UNDER CHAPTER 7 PETITION
The automatic stay is a fundamental protection that arises immediately when a bankruptcy petition is filed. Under 11 U.S.C. § 362(a), the filing of a bankruptcy petition generally operates as an automatic stay of most actions by creditors to collect or enforce pre-petition debts. It can stop lawsuits, foreclosure proceedings, repossessions, wage garnishments, collection calls, and other efforts to obtain or control property of the bankruptcy estate. The stay generally takes effect automatically, without the debtor having to obtain a separate court order.
The primary objective of the automatic stay is to provide the debtor with a temporary breathing spell from creditor collection efforts and to prevent individual creditors from obtaining an unfair advantage over other creditors. Bankruptcy is intended to provide an orderly and centralized process for dealing with the debtor’s financial problems. By stopping creditors from pursuing separate remedies, the automatic stay helps preserve the bankruptcy estate and allows the trustee and the bankruptcy court to determine how the debtor’s assets and liabilities should be administered.
The automatic stay is not absolute or permanent. The Bankruptcy Code contains exceptions under § 362(b), and in appropriate circumstances a creditor may seek relief from the stay under § 362(d). The stay may also terminate or cease to protect certain property in specified circumstances.
WHICH ACTIONS ARE STAYED
The following actions are automatically stayed under Section 362(a) of the Bankruptcy Code upon the filing of a bankruptcy petition.
Commencement or Continuation of Proceedings
Under § 362(a)(1), the commencement or continuation of any judicial, administrative, or other proceeding against the debtor that was or could have been commenced before the bankruptcy case is stayed. The provision therefore prevents creditors from initiating or continuing proceedings to establish or enforce liability for pre-petition claims. For example, if a creditor had already filed a lawsuit against the debtor before the bankruptcy petition was filed, the creditor generally cannot continue the litigation after the petition without obtaining relief from the automatic stay. Similarly, a creditor generally cannot commence a new action against the debtor to recover a pre-petition debt while the stay remains in effect.
Enforcement of Pre-Petition Judgments
Under § 362(a)(2), the enforcement of a judgment obtained against the debtor before the commencement of the bankruptcy case is stayed. The purpose is to prevent a creditor who has already obtained a judgment from using that judgment to pursue collection after bankruptcy has commenced. Thus, a creditor generally cannot proceed with execution, garnishment, attachment, levy, or other judicial or non-judicial measures designed to enforce a pre-petition judgment, unless the creditor obtains appropriate relief from the automatic stay or an applicable exception applies.
Acts to Obtain Possession of or Exercise Control Over Estate Property
Under § 362(a)(3), the automatic stay prohibits any act to obtain possession of property of the bankruptcy estate or to exercise control over property of the estate. The provision therefore prevents creditors from taking unilateral action to recover or control property that has become part of the bankruptcy estate. For example, a creditor generally cannot repossess, seize, or otherwise take control of estate property after the commencement of the bankruptcy case without obtaining appropriate relief from the automatic stay. This protection is particularly important in a Chapter 7 case because property of the estate is placed under the administration of the Chapter 7 trustee, who determines whether property is exempt, abandoned, liquidated, or distributed for the benefit of creditors.
In City of Chicago v. Fulton 592 U.S. 154 (2021), the Supreme Court considered whether a creditor violates §362(a)(3) merely by retaining possession of property of the bankruptcy estate after the debtor files bankruptcy. The Court held that the mere retention of estate property does not constitute an “act” to obtain possession of or exercise control over estate property within the meaning of §362(a)(3). The Court distinguished such passive retention from affirmative acts prohibited by the automatic stay and emphasized the separate turnover requirements contained in §542. The decision illustrates that the scope of the automatic stay depends on the precise statutory language of §362.
Acts Against Estate Property to Enforce a Lien
Under § 362(a)(4), the automatic stay prohibits any act to create, perfect, or enforce a lien against property of the bankruptcy estate to the extent the lien secures a claim that arose before the commencement of the bankruptcy case. Thus, even where a creditor holds a valid pre-petition lien, the creditor generally cannot take post-petition action to enforce that lien against property of the bankruptcy estate without obtaining relief from the stay. For example, a secured creditor generally cannot foreclose on, sell, or otherwise enforce its security interest against estate property while the stay remains in effect. Where a creditor has sufficient grounds to proceed against the property, it may seek relief from the automatic stay under § 362(d).
Creation, Perfection or Enforcement of Certain Liens
Under § 362(a)(5), the automatic stay generally prohibits an act to create, perfect, or enforce against property of the debtor a lien that secures a pre-petition claim. The provision protects the debtor’s property from additional steps by creditors to strengthen or enforce their pre-petition rights after the bankruptcy case has commenced. For example, where a creditor’s claim arose before bankruptcy, the creditor generally cannot take post-petition action to perfect or enforce a lien against the debtor’s property if the act falls within the scope of the stay. The provision thereby preserves the status of pre-petition lien rights while the bankruptcy case is being administered.
Collection of Pre-Petition Claims
Under § 362(a)(6), the automatic stay applies to any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the bankruptcy case. This provision directly restricts ordinary debt-collection activities. Accordingly, a creditor generally cannot demand payment, send collection communications, pursue collection proceedings, or take other actions intended to recover a pre-petition debt while the stay is in effect. The provision is an important component of the debtor’s protection because it gives the debtor temporary relief from individual creditor collection efforts and allows the bankruptcy process to proceed in an orderly manner.
Setoff of Pre-Petition Debts
Under § 362(a)(7), the automatic stay generally prohibits the setoff of any debt owed to the debtor against a claim against the debtor that arose before the commencement of the bankruptcy case. In other words, a creditor that also owes money to the debtor generally cannot unilaterally use the amount it owes the debtor to satisfy a pre-petition claim after the bankruptcy case has commenced. For example, if a creditor owes $10,000 to the debtor but is also owed $7,000 by the debtor on a pre-petition debt, the creditor generally cannot simply retain the $7,000 after the filing of bankruptcy by exercising a setoff, unless an applicable exception permits the action or the creditor obtains appropriate relief.
Certain Tax Court Proceedings
Finally, § 362(a)(8) stays the commencement or continuation of certain proceedings before the United States Tax Court concerning the debtor. The provision extends the protection of the automatic stay to specified tax-related proceedings that would otherwise proceed against the debtor during the bankruptcy case. Like the other provisions of § 362(a), this protection is subject to the statutory exceptions to the automatic stay and to the possibility of obtaining relief from the stay where the Bankruptcy Code permits such relief.
WHICH ACTIONS ARE NOT STAYED
Automatic stay does not bar all legal actions against the creditors. Section 362 (b) enumerates such actions which are not barred under automatic stay.
Criminal Proceedings
The first major exception to the automatic stay concerns criminal proceedings. Under § 362(b)(1), the commencement or continuation of a criminal action or proceeding against the debtor is not stayed merely because the debtor has filed for bankruptcy. Thus, a bankruptcy petition does not prevent the government from investigating, prosecuting, or pursuing a criminal case against the debtor. The exception reflects the principle that bankruptcy is intended to address financial obligations and should not be used as a means of preventing the enforcement of criminal law.
Domestic Support Obligations and Family Proceedings
Section 362(b)(2) contains several important exceptions relating to domestic support obligations and family matters. The automatic stay does not prevent proceedings for the establishment of paternity, the establishment or modification of an order for a domestic support obligation, or proceedings concerning child custody or visitation. Proceedings for the dissolution of marriage may also continue, except to the extent that the proceeding seeks to determine the division of property that is property of the bankruptcy estate. Proceedings concerning domestic violence are likewise not stayed. In addition, certain actions to collect domestic support obligations from property that is not property of the bankruptcy estate may continue, and the withholding of income for payment of domestic support obligations may continue pursuant to a judicial or administrative order or applicable law. These exceptions recognize that bankruptcy protection should not interfere with important family-law proceedings or the enforcement of obligations for the support of spouses and children.
Perfection and Maintenance of Certain Interests
Under § 362(b)(3), the automatic stay does not prevent certain acts necessary to perfect, or maintain or continue the perfection of, an interest in property, where the trustee’s rights and powers are subject to the exceptions contained in § 546(b). This provision is designed to protect certain creditors whose interests may require a post-petition act to preserve their priority against the bankruptcy estate. Thus, in circumstances covered by § 546(b), a creditor may be permitted to complete perfection or take other qualifying steps despite the commencement of the bankruptcy case. The exception is narrowly defined and applies only where the statutory requirements are satisfied.
Governmental Police and Regulatory Powers
Under § 362(b)(4), the automatic stay does not prevent a governmental unit from commencing or continuing an action or proceeding to enforce its police or regulatory power. A government agency may therefore generally continue proceedings designed to protect public health, safety, welfare, or regulatory interests, notwithstanding the debtor’s bankruptcy filing. For example, a governmental authority may continue certain enforcement proceedings involving environmental, licensing, consumer-protection, or other regulatory requirements. The exception, however, is not intended to permit the government to circumvent the automatic stay merely to obtain or protect a pecuniary interest. The distinction is therefore between governmental action taken to enforce public policy and action principally intended to collect money from the debtor.
Financial and Securities Transactions
Sections 362(b)(6) and (7) provide exceptions for certain transactions in the financial and securities markets. These provisions permit specified entities, including commodity brokers, forward contract merchants, stockbrokers, financial institutions, financial participants, and securities clearing agencies, to exercise certain contractual rights arising from commodity contracts, forward contracts, securities contracts, and related transactions notwithstanding the automatic stay. Section 362(b)(7) similarly provides protection for certain rights arising under repurchase agreements. These exceptions are intended to reduce systemic risk and prevent the automatic stay from disrupting the operation of specialized financial markets where immediate close-out, liquidation, termination, or related contractual rights may be important to the stability of the financial system.
HUD Mortgage Foreclosure Actions
Under § 362(b)(8), the automatic stay does not apply to certain foreclosure actions commenced by the Secretary of Housing and Urban Development (HUD) involving mortgages or deeds of trust insured under the National Housing Act and covering property consisting of five or more living units. This exception permits specified HUD-related foreclosure proceedings to proceed notwithstanding the bankruptcy filing, subject to the requirements of the statute. The provision represents another narrowly defined statutory exception in which Congress has determined that particular governmental or federally insured interests should not be completely suspended by the automatic stay.
Certain Tax Proceedings
Section 362(b)(9) excludes certain tax-related governmental actions from the automatic stay. These include a governmental audit to determine tax liability, the issuance of a notice of tax deficiency, a demand for the filing of a tax return, and the making of a tax assessment or issuance of a notice and demand for payment. Thus, the filing of bankruptcy does not prevent the taxing authority from carrying out these specified administrative functions. However, the Bankruptcy Code contains special rules concerning the enforcement and attachment of tax liens against property of the bankruptcy estate, and the exception should not be understood as permitting unrestricted collection of taxes in violation of other provisions of the Bankruptcy Code.
DURATION OF AUTOMATIC STAY
Section 362(c) deals with the duration of the automatic stay – that is, how long the stay created by Section 362(a) remains in effect and when it automatically terminates.
Under Section 362(c)(1), when the stay concerns an act against property of the bankruptcy estate, the stay continues until that property is no longer property of the estate. For example, if estate property is sold, abandoned, or otherwise ceases to be property of the estate, the stay applicable to that property generally terminates.
Under Section 362(c)(2), the stay concerning any other act continues until the earliest of three events: (1) the bankruptcy case is closed, (2) the case is dismissed, or (3) in an individual Chapter 7 case, a discharge is granted or denied. Thus, in an ordinary individual Chapter 7 case, the automatic stay does not necessarily continue until the case is formally closed; it may terminate earlier when the discharge is granted or denied.
There is an important special rule for repeat bankruptcy filings. Under Section 362(c)(3), if an individual files a Chapter 7, 11, or 13 case and had a previous bankruptcy case pending within the preceding one-year period that was dismissed, the automatic stay generally terminates 30 days after the filing of the later case with respect to actions concerning the debtor, the relevant debt or property securing the debt, or a lease. The debtor or another party in interest may ask the court to extend the stay, but the request must generally be made before the 30-day period expires, and the party seeking continuation must demonstrate that the later filing was made in good faith.
There is an even stricter rule under Section 362(c)(4) where an individual had two or more bankruptcy cases pending and dismissed during the preceding one-year period. In that situation, the automatic stay generally does not go into effect at all upon the filing of the new case, although the debtor may ask the court to impose the stay under the conditions specified in the statute.
RELIEF FROM AUTOMATIC STAY
Section 362(d) deals with the circumstances in which a bankruptcy court may grant relief from the automatic stay. In other words, although the filing of a bankruptcy petition automatically stops many actions against the debtor or the debtor’s property under § 362(a), a creditor or other party in interest may ask the bankruptcy court for permission to proceed.
Relief from the Stay for Cause
Under § 362(d)(1), the court may grant relief from the automatic stay “for cause,” including the lack of adequate protection of an interest in property. The court may terminate, annul, modify, or condition the stay when the circumstances justify such relief. This is particularly relevant in an individual Chapter 7 case where a secured creditor seeks to enforce its rights against the debtor’s collateral. For example, if a debtor has stopped making payments on a secured loan and the value of the collateral is declining, the secured creditor may seek relief from the stay to repossess or foreclose on the property. The court may consider whether the creditor’s interest is adequately protected through payments, additional or replacement liens, or other appropriate protection. Thus, § 362(d)(1) provides an important mechanism through which a secured creditor may obtain permission to proceed against collateral notwithstanding the automatic stay.
Lack of Equity and Property Not Necessary for Reorganization
Under § 362(d)(2), the court may grant relief from the stay with respect to an act against property if (1) the debtor does not have equity in the property and (2) the property is not necessary to an effective reorganization. The first requirement examines whether the value of the property exceeds the amount of liens and other interests against it. The second requirement concerns whether the property is necessary for a viable reorganization. This provision is especially important in Chapter 11, where the debtor is attempting to reorganize, and therefore has comparatively limited significance in an individual Chapter 7 case because Chapter 7 does not ordinarily involve a reorganization plan. Nevertheless, § 362(d)(2) may still become relevant in Chapter 7 where a secured creditor seeks relief with respect to property in which the debtor has no equity. Since there is generally no reorganization to be protected in Chapter 7, the debtor may have difficulty satisfying the second requirement when the property is not required for the administration of the estate or other purposes recognized by the Bankruptcy Code.
Single-Asset Real Estate Cases
Section 362(d)(3) contains special provisions concerning single-asset real estate cases. It is primarily directed toward cases in which the debtor’s principal business consists of owning a single real estate property or project that generates substantially all of the debtor’s gross income. The provision requires the debtor, within the statutory period, to take specified steps toward reorganization, including filing a plan that has a reasonable possibility of being confirmed within a reasonable time or commencing the required payments to the secured creditor. The provision is therefore principally relevant to single-asset real estate businesses and Chapter 11 cases rather than ordinary individual Chapter 7 cases. An individual debtor who files Chapter 7 for personal financial distress will ordinarily not fall within the type of single-asset real estate case contemplated by § 362(d)(3).
Scheme to Delay, Hinder, or Defraud Creditors
Under § 362(d)(4), the court may grant relief from the automatic stay with respect to an act against real property when the bankruptcy filing was part of a scheme to delay, hinder, or defraud creditors involving the property. This provision is relevant to Chapter 7 because an individual debtor cannot use repeated or abusive bankruptcy filings simply as a means of preventing foreclosure or other enforcement against real property. It may become particularly important where there have been multiple bankruptcy filings involving the same property or circumstances indicating that the bankruptcy process is being used primarily to frustrate a secured creditor’s remedies rather than to obtain legitimate bankruptcy relief. When the statutory requirements are satisfied, an order under § 362(d)(4) may have consequences for subsequent bankruptcy cases involving the same property, as provided by the Bankruptcy Code. Thus, although less frequently encountered than § 362(d)(1) in ordinary individual Chapter 7 cases, § 362(d)(4) provides an important safeguard against the misuse of the automatic stay.
TIME LIMIT FOR DETERMINATION OF MOTION FOR RELIEF FROM AUTOMATIC STAY
Section 362(e) deals with the time within which the bankruptcy court must address a request for relief from the automatic stay under Section 362(d). Its purpose is to prevent a secured creditor from being kept under the automatic stay indefinitely while waiting for the court to decide its motion.
Under Section 362(e)(1), when a party in interest requests relief from the stay concerning an act against property of the bankruptcy estate, the stay generally terminates 30 days after the request is made, unless the court, after notice and a hearing, orders that the stay should continue pending a final determination under § 362(d). If the court holds a preliminary hearing, it must continue the stay pending the final hearing when there is a reasonable likelihood that the party opposing relief will ultimately prevail. The final hearing generally must be concluded within the statutory time limits specified in § 362(e).
There is a special rule under Section 362(e)(2) for a case under Chapter 7, 11, or 13 involving an individual debtor. In such a case, the stay generally terminates 60 days after the request for relief is made, unless the court determines otherwise in accordance with the statutory requirements.
EMERGENCY RELIEF FROM AUTOMATIC STAY
Section 362(f) deals with emergency or immediate relief from the automatic stay when delay would cause irreparable damage to a party’s interest in property. It provides an important exception to the normal requirement of giving notice and conducting a hearing before relief from the stay is granted.
Under § 362(f), a party in interest may request the bankruptcy court to grant relief from the automatic stay. The court shall grant such relief, with or without a hearing, if it is necessary to prevent irreparable damage to an entity’s interest in property and that damage is likely to occur before there is an opportunity for notice and a hearing under § 362(d) or § 362(e).
In simple terms, § 362(f) is an emergency provision. Normally, a creditor seeking to lift the automatic stay must proceed under § 362(d), with the procedural protections provided by the Bankruptcy Code. But if waiting for that process would cause irreparable harm to the creditor’s or another entity’s interest in property, the court can provide immediate relief from the stay.
BURDEN OF PROOF
Section 362(g) deals with the allocation of the burden of proof when the bankruptcy court hears a request for relief from the automatic stay under § 362(d) or § 362(e). It determines which party has to prove which issue before the court.
Under § 362(g)(1), the party requesting relief from the automatic stay has the burden of proof on the issue of the debtor’s equity in the property. Therefore, if a secured creditor seeks relief under § 362(d)(2), the creditor must establish the relevant facts concerning the debtor’s equity in the property.
Under § 362(g)(2), the party opposing relief from the automatic stay has the burden of proof on all other issues. Thus, issues such as whether there is “cause” for relief under § 362(d)(1), including lack of adequate protection, generally fall on the party opposing the creditor’s request to establish why the stay should continue
PERSONAL PROPERTY SECURING A LOAN OR SUBJECT TO A LEASE
Section 362(h) deals specifically with the automatic stay concerning personal property of an individual debtor that is either subject to a security interest or an unexpired lease. It is particularly important in Chapter 7 consumer bankruptcy cases because it requires the debtor to make a timely decision about what will happen to secured personal property, such as a car, motorcycle, or other financed property.
Under § 362(h)(1), the automatic stay is terminated with respect to such personal property if the individual debtor fails, within the applicable period under § 521(a)(2), to file the required statement of intention or fails to take the action stated in that statement. The debtor must generally indicate whether the property will be surrendered or retained. If the debtor intends to retain the property, the debtor must, as applicable, redeem the property under § 722, reaffirm the secured debt under § 524(c), or assume an unexpired lease under § 365(p) if the trustee does not do so.
For example, suppose a Chapter 7 debtor owns a car subject to a loan. The debtor cannot simply continue keeping the car without complying with the requirements of § 521(a)(2). The debtor must timely state what he or she intends to do with the vehicle and must take the required action. If the debtor fails to do so, the automatic stay terminates as to the vehicle, and the vehicle also ceases to be property of the bankruptcy estate under § 362(h)(1).
There is, however, an exception under § 362(h)(2). The trustee may file a motion before the applicable deadline, and after notice and a hearing, the court may determine that the personal property is of consequential value or benefit to the estate. If so, the court may order appropriate adequate protection for the creditor and require the debtor to deliver the collateral in the debtor’s possession to the trustee.
PRESUMPTION AGAINST BAD FAITH
Section 362(i) deals with repeat bankruptcy filings and the presumption of bad faith under § 362(c)(3). It provides a specific exception where a previous bankruptcy case was dismissed because the debtor created a debt repayment plan.
Under § 362(i), if a bankruptcy case under Chapter 7, 11, or 13 was dismissed due to the creation of a debt repayment plan, a subsequent bankruptcy case filed by the debtor under Chapter 7, 11, or 13 will not be presumed to have been filed in bad faith for purposes of § 362(c)(3).
This is important because § 362(c)(3) ordinarily imposes a 30-day limit on the automatic stay when the debtor had a previous bankruptcy case pending within the preceding year that was dismissed. The debtor can seek continuation of the stay, but the later filing is subject to a statutory presumption that it was not filed in good faith in certain circumstances. Section 362(i) removes that particular presumption where the earlier case was dismissed because a debt repayment plan was created.
ORDER CONFIRMING TERMINATION OF STAY
Section 362(j) deals with a court order confirming that the automatic stay has terminated. It does not itself terminate the stay; rather, it allows a party in interest to request the bankruptcy court to issue an order officially confirming that the stay has already terminated under Section 362(c).
This provision is particularly useful where there may be uncertainty about whether the automatic stay is still in effect. For example, under § 362(c)(3), if an individual debtor had a previous bankruptcy case pending within the preceding one-year period and that case was dismissed, the automatic stay in the subsequent case generally terminates after 30 days, unless it is extended by the court. A creditor can then request an order under § 362(j) confirming that the stay has terminated.
Similarly, under § 362(c)(4)(A)(i), where two or more bankruptcy cases involving an individual debtor were pending and dismissed during the preceding year, the automatic stay generally does not arise at all in the new case. Section 362(c)(4)(A)(ii) specifically provides for an order confirming that no stay is in effect, while § 362(j) provides the mechanism for obtaining an order confirming termination under § 362(c).
DAMAGES FOR WILFUL VIOLATION OF AUTOMATIC STAY
Section 362(k) deals with the remedies available to an individual debtor who is injured by a willful violation of the automatic stay. It provides that an individual injured by a willful violation of the stay is entitled to recover actual damages, including costs and attorneys’ fees. In appropriate circumstances, the court may also award punitive damages.
A violation is generally considered willful when the creditor or other entity knows that the bankruptcy stay exists and intentionally performs the act that violates the stay. Importantly, the creditor does not necessarily have to intend to violate the Bankruptcy Code; the relevant issue is generally whether the creditor knew of the stay and intentionally took the action that violated it.
For example, if a creditor knows that an individual has filed for bankruptcy but nevertheless deliberately continues a collection action that is prohibited by § 362(a), and the debtor suffers financial loss as a result, the debtor may seek damages under § 362(k). The recoverable actual damages may include the debtor’s financial losses, litigation costs, and attorneys’ fees. In particularly appropriate circumstances, punitive damages may also be awarded.
There is a limited exception under § 362(k)(2). If the violation resulted from an entity acting in the good-faith belief that § 362(h) applied to the debtor, recovery is limited to actual damages. In that situation, punitive damages are not available under § 362(k).
EVICTION FROM RESIDENTIAL PROPERTY
Section 362(l) deals with a special exception to the automatic stay concerning residential eviction proceedings. It applies where, before the bankruptcy petition was filed, a lessor (landlord) had already obtained a judgment for possession of residential rental property occupied by the debtor.
Ordinarily, § 362(b)(22) provides that the automatic stay does not continue to protect the debtor from an eviction proceeding where the landlord obtained a judgment for possession before the bankruptcy filing. However, § 362(l) gives the debtor a limited opportunity to prevent the immediate application of that exception.
Under § 362(l)(1), if the debtor files with the bankruptcy petition and serves on the landlord a certification, under penalty of perjury, stating that under applicable non-bankruptcy law the debtor is permitted to cure the entire monetary default that resulted in the judgment for possession, the stay continues for 30 days after the bankruptcy petition is filed.
The debtor must also certify that the debtor has deposited with the bankruptcy court the amount of rent that will become due during the 30-day period following the filing of the petition, as required by the statute. If the debtor successfully cures the monetary default within the applicable period, the eviction may be prevented.
The landlord, however, can object to the debtor’s certification. If the landlord files an objection, the bankruptcy court must hold a hearing within 10 days to determine whether the debtor’s certification is true. If the court upholds the landlord’s objection, § 362(b)(22) applies immediately, and the landlord does not need to obtain further relief from the automatic stay to complete the eviction process.
Suppose a landlord obtained a judgment for possession against a tenant before the tenant filed Chapter 7 bankruptcy. Ordinarily, § 362(b)(22) means that the automatic stay will not prevent the landlord from continuing the eviction.
However, if the debtor can legally cure the monetary default under applicable state law, the debtor can file the required certification under § 362(l). This gives the debtor a 30-day period of protection, subject to the requirements of the statute, during which the debtor may attempt to cure the default.
EVICTION BASED ON ENDANGERMENT OR DRUG USE
Section 362(m) deals with a special protection relating to residential eviction proceedings based on endangerment of the property or illegal use of controlled substances. It works together with § 362(b)(23), which creates an exception to the automatic stay for certain such eviction actions.
Under § 362(b)(23), the automatic stay does not prevent a landlord from continuing an eviction action against a debtor who is a residential tenant when the eviction is based on endangerment of the residential property or the illegal use of a controlled substance on the property, provided the landlord files and serves the required certification.
Section 362(m) gives the debtor a limited opportunity to contest that certification. The debtor may file an objection to the landlord’s certification within the period prescribed by the statute. If the debtor files such an objection, the landlord’s eviction action is temporarily stayed, and the bankruptcy court must determine whether the certification is valid.
If the court determines that the certification is valid, the exception under § 362(b)(23) applies and the landlord may proceed with the eviction. If the certification is found to be invalid, the automatic stay continues to apply to the eviction action.
LIMITATION OF AUTOMATIC STAY IN SMALL BUSINESS CASES
Section 362(n) deals with an exception to the automatic stay for certain debtors who are involved in repeated bankruptcy filings and small business cases. In particular, it prevents the automatic stay from applying when the debtor is a small business debtor and certain specified prior bankruptcy cases were dismissed within the preceding two years.
Under § 362(n)(1), the automatic stay under § 362(a) generally does not apply when the debtor is a debtor in a small business case that was pending when the new petition was filed, or when the debtor was a debtor in a small business case that was dismissed by a final order during the two-year period preceding the new bankruptcy case. The provision contains additional conditions concerning prior cases and dismissal.
The purpose of § 362(n) is essentially to prevent abuse of the bankruptcy process by repeatedly filing small-business bankruptcy cases to obtain the protection of the automatic stay. It limits the ability of a debtor who has recently been involved in a dismissed small-business bankruptcy case to obtain another automatic stay simply by filing a new petition.
There are, however, exceptions under § 362(n)(2). Therefore, § 362(n) should not be understood as an absolute prohibition on every subsequent bankruptcy filing; rather, it specifies circumstances in which the automatic stay of § 362(a) will not operate.
PROTECTION OF CERTAIN RIGHTS FROM COURT ORDERS
Section 362(o) provides that a bankruptcy court or administrative agency cannot use an order in a bankruptcy proceeding to stay the exercise of certain rights that are expressly excluded from the automatic stay under § 362(b). In other words, where Congress has specifically determined that a particular right is not subject to the automatic stay, another court or administrative agency generally cannot impose a stay that prevents the exercise of that right.
Specifically, § 362(o) applies to rights that are not subject to the stay under § 362(b)(6), (7), (17), or (27). These provisions primarily concern certain financial-market transactions, repurchase agreements, specified setoff/netting rights, and certain contractual rights.
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Mukesh Suman is lawyer based at Delhi, India. He also provides bankruptcy paralegal services to clients based in the United States.
