11 U.S.C. Section 362 - Automatic Stay

What Is Section 362?

Section 362 of Title 11 of the United States Code creates the automatic stay, one of the most consequential provisions of the Bankruptcy Code. The moment a petition is filed under Chapters 7, 11, 12, or 13, the stay arises by operation of law and halts virtually all collection activity, lawsuits, foreclosures, repossessions, garnishments, and administrative proceedings directed at the debtor or property of the bankruptcy estate.

The stay is not discretionary and requires no order or notice. It binds creditors the instant the petition is docketed, even before they receive formal notice from the court. Its purpose is to provide the debtor with a breathing spell and to preserve the estate for orderly distribution among creditors.

Scope of the Stay: Section 362(a)

Section 362(a) enumerates eight categories of acts that are stayed upon the filing of the petition. The most frequently invoked include:

• 362(a)(1): Commencement or continuation of any judicial, administrative, or other action against the debtor that was or could have been commenced before the petition.
• 362(a)(2): Enforcement against the debtor or against property of the estate of a judgment obtained before the petition.
• 362(a)(3): Any act to obtain possession of property of the estate or to exercise control over property of the estate.
• 362(a)(4): Any act to create, perfect, or enforce any lien against property of the estate.
• 362(a)(5): Any act to create, perfect, or enforce a lien against property of the debtor securing a pre-petition claim.
• 362(a)(6): Any act to collect, assess, or recover a pre-petition claim against the debtor. This is the broad collection prohibition that covers phone calls, dunning letters, and similar conduct.
• 362(a)(7): Setoff of any debt owing to the debtor that arose before the petition against any claim against the debtor.
• 362(a)(8): Commencement or continuation of a proceeding in the United States Tax Court concerning a corporate debtor's tax liability or concerning the debtor's tax liability for a taxable period the bankruptcy court may determine.

Exceptions: Section 362(b)

Section 362(b) lists more than two dozen exceptions to the automatic stay. Commonly encountered exceptions include:

• Criminal proceedings against the debtor (362(b)(1)).
• Establishment of paternity, modification of domestic-support obligations, child-custody and visitation matters, and certain divorce proceedings (362(b)(2)).
• Collection of domestic-support obligations from property that is not property of the estate (362(b)(2)(B)).
• Acts to perfect, maintain, or continue the perfection of an interest in property to the extent permitted by Section 546(b) (362(b)(3)).
• Governmental unit's enforcement of its police or regulatory power, including issuance of orders other than money judgments (362(b)(4)).
• Eviction by a lessor of nonresidential real property after lease termination (362(b)(10)).
• Certain residential evictions where a pre-petition judgment for possession has been entered (362(b)(22), subject to the Section 362(l) cure procedure).

The police-and-regulatory exception in 362(b)(4) is heavily litigated. The leading framework distinguishes between governmental actions to protect public health, safety, and welfare (not stayed) and actions primarily designed to protect a governmental pecuniary interest (stayed).

Duration of the Stay: Section 362(c)

Under Section 362(c)(1), the stay of an act against property of the estate continues until the property is no longer property of the estate. Under Section 362(c)(2), the stay of an act against the debtor (or against property of the debtor) continues until the earliest of case closure, dismissal, or entry of discharge.

Sections 362(c)(3) and 362(c)(4) impose significant limitations on serial filers. If the debtor had a prior bankruptcy case dismissed within one year, the stay terminates 30 days after filing unless extended on motion (362(c)(3)). If two or more prior cases were dismissed within one year, no stay arises at all unless imposed by the court on motion (362(c)(4)).

Relief From Stay: Section 362(d)

A party in interest may move for relief from stay under Section 362(d). The court "shall" grant relief on one of four grounds:

• 362(d)(1) - For cause: Including lack of adequate protection of an interest in property. This is the most flexible ground and is commonly invoked by secured creditors when collateral is depreciating and no adequate protection is being provided.
• 362(d)(2): With respect to a stay of an act against property, if the debtor has no equity in the property and the property is not necessary to an effective reorganization.
• 362(d)(3): In single-asset real estate cases, where the debtor has not filed a plan with a reasonable possibility of confirmation or commenced monthly interest payments within 90 days.
• 362(d)(4): Where the filing was part of a scheme to delay, hinder, or defraud creditors with respect to real property, allowing in rem relief that binds future filers.

A hearing on a stay-relief motion must conclude within 30 days under Section 362(e)(1), or the stay terminates by operation of law as to the moving party. The 30-day deadline can be extended by agreement or by the court for cause.

Consequences of Stay Violations: Section 362(k)

Section 362(k)(1) provides that an individual injured by any willful violation of the stay shall recover actual damages, including costs and attorneys' fees, and in appropriate circumstances may recover punitive damages. A violation is "willful" when the creditor knew of the stay and the actions taken were intentional, regardless of intent to violate the stay itself.

Common violations include continued garnishment after notice, refusal to return seized collateral, post-petition collection calls, and continued prosecution of pre-petition lawsuits. Courts have consistently held that creditors bear an affirmative duty to halt collection activity and to take affirmative steps to undo pre-petition collection actions when notified of the bankruptcy.

Related Bankruptcy Code Sections

The automatic stay operates in concert with several other provisions:

• Section 541 - Property of the estate, which defines the property protected by 362(a)(3) and (4).
• Section 521 - Debtor's duties, including the duty to surrender property and provide tax returns.
• Section 524 - Discharge injunction, the permanent successor to the automatic stay.
• Section 363 - Use, sale, or lease of property, which interacts with stay relief.
• Section 1201 - Stay of action against codebtors in Chapter 12 cases.

The Federal Rules of Bankruptcy Procedure 4001 (relief from stay) and 9014 (contested matters) govern the procedural mechanics of stay motions.