Virtually all actions by creditors to collect the debts you owe are stopped the minute you file bankruptcy. Here are some special exceptions.
The “Automatic Stay”
The immediate stopping of collections—called the “automatic stay”—is one of the most important benefits of filing bankruptcy. It’s automatic because it is put into operation by the mere act of filing bankruptcy. It doesn’t need any action by the bankruptcy court or anybody else to become effective. Its purpose is to stay, or stop, all collections.
Because the “automatic stay” is a benefit that a person filing bankruptcy counts on so much, it is very important to understand its exceptions—situations in which a creditor can continue acting in spite of your bankruptcy filing.
The exceptions all apply to very specific kinds of creditor actions, done by very specific kinds of creditors.
1. Criminal Matters:
A district attorney or other governmental authority can start or continue a criminal case against you. That means that any step of a criminal case against you can proceed regardless of your bankruptcy filing: you can be indicted, tried, and sentenced, and incarcerated.
On a practical level it’s important to realize that this exception doesn’t just apply to felonies and misdemeanors, but sometimes also to mundane matters that you might not consider “criminal” like traffic infractions. These may even differ state by state.
In many other areas, the line between criminal and civil proceedings, and between criminal and civil debts, can get hazy. Examples are an employee’s embezzlement, a vehicle repair shop’s illegal disposal of its hazardous waste, and a bar fight. Each of these could involve either criminal charges or civil claims, or both.
Be sure to tell your bankruptcy attorney about anything unusual such as these, so that you are both prepared for any criminal proceeding that would not be stopped by your bankruptcy case.
2. Family court:
Your ex-spouse, or soon-to-be ex-spouse, or somebody on his or her behalf, can start or continue various kinds of divorce and family court proceedings:
- to establish paternity of a child
- to determine or change the amount of child or spousal support to be paid
- to resolve child custody or visitation issues
- to address domestic violence disputes
- to dissolve a marriage (but marriage dissolution cannot include a determination about how assets or debts would be divided between the spouses)
3. Collection of Child or Spousal Support:
- ongoing support can continue to be collected by its payee, directly or through support enforcement agencies, regardless of any kind of bankruptcy filing
- unpaid support arrearage can also start or continue to be collected, at least in spite of a Chapter 7 filing:
- through wage withholdings
- garnishment of bank accounts
- seizure of a tax refunds
- suspension of a driver’s licenses (both regular and occupational)
- suspension of virtually all other licenses issued by the government, including occupational and professional licenses, and even hunting or other recreational licenses.
- In contrast, a Chapter 13 filing CAN stop these aggressive methods of collecting unpaid support arrearage, as long as the debtor strictly follows a number of steps—most importantly, starts making the regular support payments right away, arranges to pay the arrearage in full through the Chapter 13 plan, and actually pays everything as proposed.
Taxing authorities can:
- start or finish a tax audit
- can send you a notice that you owe taxes
- can demand that you file your tax returns
- can assess your taxes and send a demand that you pay them (but do no more)
- in very limited situations can even file a tax lien
To emphasize, the automatic stay stops almost all actions against you by almost all creditors. But if you are involved in any court proceeding or collection efforts by the criminal or taxing authorities, or by an ex-spouse or support enforcement agency, you need to be especially familiar with these exceptions.