Automatic stay - who does it apply to?

[bornfree2]

If debtor has a pending lawsuit and bk7 is filed, automatic stay should pause that litigation. Does that mean the debtor can not continue with discovery as they are not bound by fact that they are not the collector / plaintiff? Or does it apply equally to both sides?

And if the stay persists during the discharge process, but the case is dismissed, the case resumes...does that mean trial is rescheduled thus opening up discovery?

Ideally, the stay would prevent collector , but allow debtor to 'backlog' discovery requests... as 'insurance' if the stay is lifted and the bk attempt fails...this way the debtor has some new avenues of attack/time rather than being thrown back into the lions den.

Lastly, if a creditor who is suing shows up at the 341, why do they now have a right to interrogate if there is a stay on them. Obviously the creditor will use that 341 to question debtor under oath without the forum of the civil court -- a more dangerous place for the debtor who was seeking protection from the start of the filing!!

How would that not be a violation of the stay if they are gather evidence they can use against debtor to finish a stayed lawsuit or initiate an AP ?

[justbroke]

(Most of my comments below are stronger for Chapter 7s versus Chapter 13s. A Chapter 13 operates a little differently, even though a bankruptcy estate is created at the filing of either.)

If debtor has a pending lawsuit and bk7 is filed, automatic stay should pause that litigation.

The automatic stay, for the most part, applies to any creditor. That includes federal, state, and local government (period). That means that even the IRS is stayed from any collection activity (for pre-filing debt) once the bankruptcy is filed. The automatic stay comes under 11 USC 362 and acts as an injunction to continue or start any act to collect property of the bankruptcy estate. In some cases, it even stops perfection of certain liens.

(The automatic stay doesn't "automatically" do anything. It just sets a bar to the continuation (or start) of process. How does the local non-bankruptcy court know there's a stay? In some jurisdictions a Suggestion of Bankruptcy is filed to suspend the action in the local court. In other cases the creditor's attorney finds out via the debtor, debtor's attorney, or the Notice of Bankruptcy that is sent out from the Bankruptcy Noticing Center.)

Does that mean the debtor can not continue with discovery as they are not bound by fact that they are not the collector / plaintiff? Or does it apply equally to both sides?

Technically both sides cannot proceed with anything that deals with property of the bankruptcy estate.

Are you starting to see how all this works, or are starting to get the entire picture? Why an "estate" is created upon filing is to allow the trustee and the court to freeze everything in place. The stay freezes everything so that the bankruptcy trustee and court can deal with the creditors. The freezing is a snapshot in time that sets the contents of the bankruptcy estate.

And if the stay persists during the discharge process, but the case is dismissed, the case resumes...does that mean trial is rescheduled thus opening up discovery?

There is hardly ever a case where the case is dismissed after the discharge. However, if the case is dismissed it is usually done on motion and that motion would be to either a.) revoke the discharge, or b.) would have been a motion to deny a discharge in the beginning.

How a creditor deals with a State non-bankruptcy action is interesting. Most creditors will have a very good idea that their claim is both subject to discharge and dischargeable. In these cases, the creditor will drop the suit (voluntary dismissal without prejudice). If the case doesn't make it to discharge, so be it.

Foreclosures, however, are expensive to even open a case (thousands of dollars). So in these cases the creditor will pause the foreclosure action and wait for the discharge. This works to their advantage in a Chapter 7 in case they are granted relief from the automatic stay, or the case is dismissed without a discharge. The foreclosing creditor can just resume the foreclosure action.

The short answer, here, is that the plaintiff doesn't have to dismiss their case. They just can't "continue" process to obtain property of the bankruptcy estate. So many will pause the proceedings until they get a clear picture of what is happening. (For Chapter 13s, it's a little more complex for the plaintiff/creditor as they need to read the plan and see how they are treated by the plan. If the creditor isn't treated properly, they'll object to confirmation and/or motion for relief from the automatic stay... so they can continue process outside the bankruptcy. But alas, unsecured creditors will find it tougher since they'll have to prove that the debt is non-dischargeable.)

Ideally, the stay would prevent collector , but allow debtor to 'backlog' discovery requests... as 'insurance' if the stay is lifted and the bk attempt fails...this way the debtor has some new avenues of attack/time rather than being thrown back into the lions den.

No, the debtor should not be doing anything. The debtor can't do anything with property of the estate. Remember, and it should now be coming clearer to you, the Trustee steps into the shoes of the debtor. The trustee is in charge of the entire bankruptcy estate. The entire purpose of creating that bankruptcy estate is to know what is included, and to give authority to the trustee to manage that bankruptcy estate.

In fact, in some cases, the Trustee will step into the shoes of the debtor in the State non-bankruptcy action. Remember, if you were to win the non-bankruptcy action and were awarded money... it actually belongs to the bankruptcy estate created when you filed. Chapter 7 Trustee absolutely love personal injury cases and will actually step in as counsel or interject themself into the process.

Lastly, if a creditor who is suing shows up at the 341, why do they now have a right to interrogate if there is a stay on them. Obviously the creditor will use that 341 to question debtor under oath without the forum of the civil court -- a more dangerous place for the debtor who was seeking protection from the start of the filing!!

They don't. A creditor can file a Motion for Relief from the Automatic stay, or a Motion to Confirm No Stay Applies. That is how a creditor gets out from the automatic stay. The 341 Meeting has nothing to do with the stay. The 341 Meeting is a statutory meeting of creditors where they can ask limited questions of the sworn-in debtor. Usually those questions are things like "where is the car," "do you intend to reaffirm the debt" (and actually give reaffirmation documentation right at the meeting), or things like "is the vehicle insured, where is the insurance declaration page."

Remember, if the creditor really needs to "interrogate" the debtor, then they need to use the Rule 2004 Examination process. The 341 Meeting of Creditors is for very limited questioning (examination) of the debtor. The Trustee would shut down anything that got into substantive issues. As I said, the questions of a creditor at a 341 Meeting are usually generic.

The Rule 2004 Examination is a powerful tool for creditors. Most don't use it, but if you were in litigation in non-bankruptcy court, this gives the creditor an upper hand. They get to depose you outside the rules of a standard deposition. Rule 2004 Examinations are rare, despite their power. A creditor that knows that their debt is dischargeable is not going to waste thousands of dollars to pursue the debt. (A debtor could also use this tool, but it's very rare. Usually it is the trustee that uses this process to examine the debtor further under oath.)

How would that not be a violation of the stay if they are gather evidence they can use against debtor to finish a stayed lawsuit or initiate an AP ?

The stay is pretty simple. Read 11 USC 362... it stays "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor". Pretty simple stuff. Gathering evidence is a "continuance" of process. Negative credit reporting, sending dunning letters, sending billing statements, calling, demanding payment, threats to sue, are all considered "commencement" or "continuation" or process against the debtor.

The automatic stay and permanent discharge injunction are cannon. Most creditors only are involved in "technical" violations but some violate because they believe the stay doesn't apply to them. The best thing for all creditors is to either accept that your debt is dischargeable (and keep quiet), or file a Motion for Relief from the Automatic Stay (RFS) or even a Motion to Determine Dischargeability. Most creditors won't do this because it costs $$$, and 95% of the time, it's a serious waste of money.

(This is not a Master Class on bankruptcy. Bankruptcy rules can be complex but there is one thing that is cannon. The automatic stay and the permanent discharge injunction. We just don't mess with these!)

[bornfree2]

justbroke pearls of wisdom with crisp delivery thanks. You gave me a new angle of understanding here - a debt collector in a suit must first seek a judgement order with which they can use to implement their methods of confiscation. But once petition is filed, all the property is transferred to the trustee so the debtor is now empty pockets! "Dont look at me, i got nada...talk to the trustee' ... and thus the process of bk and redistribution begins.

From what im learning, the automatic stay is the only defensive play left for the debtor. It is THEIR filing that produces the stay with the power of the BK court/law behind it. So they run into the 'safe harbor' of the BK court, but alas the price of admission is complete abandonment of property and the scarlet letter ...and then exempt/non exempt wrangling begins. But the litigating creditor is forced to sit outside and take a place in line.

From what you are saying, if the creditor violates the stay, any action against them should be done after discharge otherwise the trustee would collect the damages for all the work the debtor does. But to me thats such a gamble cause battling big bad debt collector POST filing means the attorney fees they will get on you wont be dischargeable. And since you already BK, boy oh boy would you be poking at the hornets nest.

So in conclusion, a potential BK filing should hopefully persuade the collectors to dismiss, but i fully expect they have many tactics for this scenario and thats what terrifies me. If they have found ways to outsmart the BK process and can skillfully get the debtor back in jeopardy (via adversary proceedings or threats of 'fraud' litigation if a reaffirmation thing isnt done), then what hope is left post filing? You cant Bk again, so its like 'welcome to your new life with the blood suckers ready to cut your throat after you file'.

The only real solution is to become infinitely valuable in the marketplace (with service or product) and build up some f-u money to all these parasites!

[bornfree2]

The stay is pretty simple. Read 11 USC 362... it stays "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor". Pretty simple stuff. Gathering evidence is a "continuance" of process. Negative credit reporting, sending dunning letters, sending billing statements, calling, demanding payment, threats to sue, are all considered "commencement" or "continuation" or process against the debtor.

Side note: it may be beneficial to have a thread or sub forum that has a post links of all the relevant laws/rules etc. Would probably help this forum with SEO as well. Just a thought.

[justbroke]

From what you are saying, if the creditor violates the stay, any action against them should be done after discharge otherwise the trustee would collect the damages for all the work the debtor does.

That's worse. The discharge comes with a stronger permanent discharge injunction. It is not to be played with. We must keep repeating that bankruptcy discharges all debt that arose prior to the filing of the case with certain exceptions. If the debt was discharged, the creditor is enjoined (stayed) from attempting to collect that debt in any way shape or form.

But to me thats such a gamble cause battling big bad debt collector POST filing means the attorney fees they will get on you wont be dischargeable. And since you already BK, boy oh boy would you be poking at the hornets nest.

You overthink this too much. Smart creditors... and most are actually smart... don't play games with bankruptcy, the automatic stay, and certainly not the permanent discharge injunction. They could be penalized into the tens or hundreds of thousands of dollars for violating a single debtor's stay/injunction.

So in conclusion, a potential BK filing should hopefully persuade the collectors to dismiss, but i fully expect they have many tactics for this scenario and thats what terrifies me.

Doesn't "hopefully" and certainly does not "persuade." A bankruptcy discharged all debt that arose before the filing of the petition. In most bankruptcy cases, the creditors don't say anything and just allow the debt to discharge. The only cases where it seems that the creditor puts on a little fight, is where there is an indicia of fraud or the debt was incurred on the eve of filing bankruptcy.

If they have found ways to outsmart the BK process and can skillfully get the debtor back in jeopardy (via adversary proceedings or threats of 'fraud' litigation if a reaffirmation thing isnt done), then what hope is left post filing? You cant Bk again, so its like 'welcome to your new life with the blood suckers ready to cut your throat after you file'.

You can't outsmart the process. The process is the process. If they want their debt to not be discharge they must file a Motion for Relief from the Automatic Stay (RFS) -- and have cause. Or they must file an adversary proceeding (mini-lawsuit within the bankruptcy) on a Motion to Determine Dischargeability of Debt. These tactics are highly unusual except for secured creditors or those unsecured creditors seeking fraud claims.

This just doesn't happen as often as I think you're thinking.

[bornfree2]

All I can say is God bless America and protect its wonderful constitution from which every person can claim their rights including bankruptcy. What genius the founding fathers were for the system we enjoy

[justbroke]

All I can say is God bless America and protect its wonderful constitution from which every person can claim their rights including bankruptcy. What genius the founding fathers were for the system we enjoy

Bankruptcy has technically been around in for a long time, but thank God that we don't have Rome's bankruptcy system! So yes, thank God that the bankruptcy system is codified because of the U.S. Constitution which requires such laws, since 1801.

[flashoflight]

Foreclosure is a great example of what the creditor still can do while the automatic stay is in effect. They can schedule a future date foreclosure auction usually two months away while the automatic stay is still in effect. About two days before the auction, the sale will be postponed another two months assuming the automatic stay is still in effect. In California, the Notice of Sale lasts one year and then expires. After the NOS expires, the right to auction the property at the courthouse steps (or online) is extinguished until a new NOS is recorded at the county recorder office. They can't file the new NOS due to the automatic stay. However, the notice of default doesn't need to be recorded again so if the bankruptcy fails, the foreclosure is only delayed by 2-3 months without using less than honorable delay tactics.

Before you get too excited about the monetary penalties for violating the automatic stay, let me tell you that it's hard to prevail. Even worse, the first major hurdle you will face is that the lawsuit is property of the estate. How did I get around that? Unfortunately, I have a confidential settlement so I cannot say.

[bcohen]

Before you get too excited about the monetary penalties for violating the automatic stay, let me tell you that it's hard to prevail. Even worse, the first major hurdle you will face is that the lawsuit is property of the estate.

I do not think this is true. It is not that difficult to prevail against a creditor who has received constructive notice of the debtor's bankruptcy, yet chooses to continue attempting to collect the debt/pressure the debtor into paying. It is also incorrect to suggest that any claim arising from a creditor's failure to comply with the automatic stay is property of the bankruptcy estate. In the context of Chapter 7 bankruptcy, that would not be true, because the event which gave cause for the claim (i.e. the creditor's violation of the automatic stay) would have occurred after the filing date, by definition.

[flashoflight]

I do not think this is true. It is not that difficult to prevail against a creditor who has received constructive notice of the debtor's bankruptcy, yet chooses to continue attempting to collect the debt/pressure the debtor into paying. It is also incorrect to suggest that any claim arising from a creditor's failure to comply with the automatic stay is property of the bankruptcy estate. In the context of Chapter 7 bankruptcy, that would not be true, because the event which gave cause for the claim (i.e. the creditor's violation of the automatic stay) would have occurred after the filing date, by definition.

I had to pay an upfront retainer and it wasn't cheap. The case needed to be well into the five figures for me to do it. In my court, we have to do automatic stay violations as an adversary. We can't do it via motion. If it was a simple case where the creditor called two or three times after filing, I wouldn't have pursued this due to the legal cost and lack of actual monetary damages from phone calls. What kind of creditor would be as dumb as mine and get an AP that was worthwhile for me to sue? And because it's a chapter 13, it's part of the estate like everything else post-petition in a 13.

[justbroke]

For what it is worth noting that it is a little different with a Chapter 13. In my case the Trustee negotiated with me on the damages because some may not be property of the estate.

I don't like the idea that a stay violation has to be done in an adversary. I did do it by adversary once, but the second time I did it as a regular contest matter by motion. I understand why the courts may want an adversary proceeding since "contested matters" must follow the same guidelines in the rules of bankruptcy procedure. Also cuts down on the number of frivolous ("easy money") stay violations. But, alas, an AP just for violation of the automatic stay seems like it just creates more work for the court.

Suffice it to say that different courts handle certain contested matters differently. Another example where this happens is with a determination of dischargeability. Some courts will do it on motion as a contested matter (Motion to Determine Dischargeability), and others will want a full-blown adversary proceeding (Complaint to Determine Dischargeability and even Complaint to Determine Secured Status). Even still, some courts require lien stripping, which can be done on motion in my district, to be done via the adversary proceeding as well.

Local rules... why everything isn't the same everywhere!

[bornfree2]

Bankruptcy has technically been around in for a long time, but thank God that we don't have Rome's bankruptcy system!

What was Rome's BK system? The trustee castrated someone and put their nuts on deposit until all property was transfered in an audit?

[justbroke]

What was Rome's BK system? The trustee castrated someone and put their nuts on deposit until all property was transfered in an audit?

Basically. Jail, distribution, and usually death thereafter.

[bornfree2]

Basically. Jail, distribution, and usually death thereafter.

So no rights whatsoever? Or I suppose it depended on what class of person you were and what senator you knew

[justbroke]

So no rights whatsoever? Or I suppose it depended on what class of person you were and what senator you knew

You had the right to be liquidated... figuratively and literally. But, it improved over time. The debtors prison, from where we get that term, was eventually nixed. Instead debtors would become slaves, of a sort, to the creditor to payoff the debt.