The Automatic Stay: The 800 Pound Gorilla
You would think that by now, the vast majority of creditors would fully understand the effect and duration of the automatic stay of 11 U.S.C. Section 362. Admittedly, Section 362 is about a zillion pages long, and has been a fruitful source of litigation. And certainly, most clients do not have the time or the inclination to follow such matters closely. That's why they have attorneys. Here are some of the misconceptions I hear most often:
A. "I didn't get notice": my stock answer is "what is it about the word automatic that you don't understand?" The stay is effective upon filing.
B. "I repossessed before the filing": there are a few folks out there who assume that once repossession is effected, title has passed and the property is no longer subject to the stay. Title does not pass until a disposition of the asset occurs in accordance with applicable state law.
C. "My customer told me it was OK to come get the tractor": if you think this will work, I can't help you.
D. "The told me they weren't going to bankrupt on my debt": the stay is not dependent upon the claim or debt. The stay is intended to protect property of the bankrutpcy estate, a term very broadly defined by Section 541 of the Bankruptcy Code. Anything that is property of the bankruptcy estate is protected by the stay, notwithstanding claims or liens.
E. "I filed the garnishiment before bankruptcy--it's not my fault the employer continued withholding": if you file a writ of garnishment or execution, and debtor files bankruptcy, you have an affirmative duty to dismiss or stay the proceeding immediately. If, with notice of bankruptcy, you do nothing, you are at risk for sanctions. Myers v. Miracle Finance, AP case number 08-1061, Chapter 13, Middle District of Alabama, March 6, 2009. Question: what if you have referred an account for collection? Do you have an affirmative duty to terminate those collection efforts? I think you do.
F. "Someone told me that once discharge enters, the stay is over": It is not quite that simple. Generally speaking, the stay of an act against property of the estate continues until such property is no longer property of the estate. The stay of any other act continues until the earlier of (a) the time the case is closed; (b) the time the case is dismissed; or (c) the time discharge is granted or denied. Frankly this subject is too involved to cover in a blog post, so you might want to take a look at my web site where I've posted a detailed paper on the automatic stay.
I've rambled on long enough. My advice is to always err on the side of caution, seek stay relief when there is any question, and call your attorney before taking action. The old adage "pay me now or pay me later" is very applicable to stay violations.
