The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "The Law, Q&A" runs in the Champaign News Gazette.
I was on the verge of filing to evict some tenants, when I got a notice that they’d filed for bankruptcy. The notice seems to say I can’t go ahead with an eviction. Is that right? How can I get them out?
Welcome to the “automatic stay.” It “stays”—or stops—any attempt to recover money or property from someone who’s filed for bankruptcy. There are ways to get around it legally, but big dangers if you violate it. Be careful.
The automatic stay has been called “an instrument of awesome breadth and power.” It provides a time-out that at least temporarily avoids crises like foreclosures or disconnections. Often, that instant breathing room is the main reason to file for bankruptcy.
The stay is a legal injunction from the bankruptcy court that stops almost all collection activity. As the name suggests, it’s automatic, and is triggered the moment a bankruptcy case is actually filed.
In emergencies, a short, bare-bones bankruptcy petition can be filed just to get the automatic stay. Then, the debtor must complete the regular filing within 14 days. If they don’t, their case is dismissed, and the stay is “dissolved.” (Getting a stay becomes harder after previous bankruptcy filings have been dismissed.)
The automatic stay applies to “pre-petition” debts, and (usually) everything the debtor owns or is renting. That means the stay doesn’t stop you from collecting new debts incurred after someone files for bankruptcy. (Just be sure it’s a completely new debt.)
Freezing the debtor’s property, or “estate,” so that the bankruptcy court can try to repay all creditors equitably, is another big reason behind the automatic stay. It prevents creditors from scrambling to grab all they can, ahead of others.
Creditors listed in the bankruptcy petition get written notice of the bankruptcy filing, and automatic stay. But because the stay is automatic, they’re bound by it even before they know about it. The bankruptcy court can undo anything done in violation of the stay, by making creditors return money or property.
Even creditors left off the bankruptcy petition, and who therefore don’t get written notice, are subject to the stay. That’s all part of preserving the debtor’s estate.
The automatic stay affects all creditors, then, even before they know about it.
Creditors can ask a bankruptcy judge to “lift” the stay, so they can collect their debt. That requires a formal request—which can get tricky because bankruptcy court prefers that everything be filed electronically. But if you don’t get the stay lifted, you’re usually bound by it—and stuck on hold—until the debtor completes their case and gets their discharge, or has their case dismissed.
The main exceptions to the broad coverage of the automatic stay are criminal cases, and “domestic support obligations” (child support, mostly). An exception for landlords is if they got an eviction before bankruptcy was filed. They can enforce an eviction order they already got, but can’t try to get one without lifting the stay.
Bankruptcy judges come down hard on people who willfully violate the stay, by imposing penalties on top of just restoring the status quo. Violating the stay can be surprisingly easy, so talk to a lawyer.