Understanding Bankruptcy Rights: Exceptions to the Automatic Stay

The automatic stay is one of the greatest benefits that filing for bankruptcy has to offer. However, it is important to note that there are some exceptions to the applicability of automatic stay rights.  You will not be protected from criminal prosecution, divorce proceedings, government regulatory procedures (except for efforts to collect on pre-petition debt--these will be barred) and efforts to collect on child support and alimony, or even modifications of the support orders.  Regular deductions for payments of a loan against a retirement plan may also continue even after the stay.

One of the most commonly encountered exceptions to the automatic stay relates to purchase money security interests. "Purchase money security interest" in plain English refers to loans that are used toward the purchase of some item while immediately conferring interest in the item to the lender.  The most typical example of this is a car loan. Another example is where you charge a purchase to some department stores. If they have purchase money security interest in the item, they can repossess the item if you fail to pay what you owe on it, and an automatic stay may not protect you from such an action.

Even if you are current on your secured debt, the creditor may still petition the court for relief from the stay-- if they can show they have "good cause." This usually refers to a situation where the secured creditor has "inadequate protection" as a result of the stay or where the stay puts their interest in some property in jeopardy. One example of inadequate protection is failure to maintain auto insurance.

One final category of exceptions to the automatic stay involves prior bankruptcies. If you filed for bankruptcy within the previous year and it was dismissed for some reason other than failing the Means Test, the automatic stay will still be automatic, but it will only last 30 days unless you convince the court otherwise. If you have had more than one bankruptcy dismissed, the automatic stay is not so automatic: you can only get it through a special request to the court.  Finally, there is no automatic stay for bankruptcies that are dismissed for misconduct (like ignoring a court order), or for those dismissed on request of the debtor because relief from a stay was granted to a creditor.  These last two will apply to bankruptcies dismissed within the prior 180 days (half a year).

Some of these exceptions have come into play because of the 2005 bankruptcy law reform. Don't let a few exceptions to the automatic stay leave a sour taste in your mouth--the automatic stay is absolutely a wonderful benefit and a powerful tool at your disposal despite the credit card lobby's efforts to change the fact. If anything, take these exceptions as proof that hiring a lawyer is a good idea when you file for bankruptcy. Your lawyer will help you read the legal landscape and prepare you for a successful bankruptcy.

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