Automatic Stay Flashcards
What conduct does 362(a) stay?
(1) Any act to obtain possession of property of the estate or to exercise control over property of the estate [362(a)(3)].
(2) Commencement or continuation of judicial proceedings against the debtor to recover pre-petition claim against the debtor [362(a)(4),(5)].
(3) Any act to enforce or collect a pre-petition claim against the debtor, property of the debtor or property of the debtor’s estate. [362(a)(6)].
Cannot levy on the debtor’s property.
LIMITS to the Automatic Stay?
Creditors can still go after guarantors and co-defendants.
Can a debtor’s stay litigation against third parties? If yes, how?
Yes. obtain a “section 105 injunction” to stay litigation against third parties. Such relief is available only in limited circumstances such as when:
-A judgment against a third party will trigger indemnity obligations.
-An insurance policy covers debtors and co-defendants and claims against co-defendants reduces the amount of coverage for the debtor.
-Third parties are providing capital to fund a plan or otherwise indispensable to reorganization.
Can a creditor get relief from stay?
Yes, under section 362(d) for “cause.”
Examples of “Cause” for relief from stay?
(1) Lack of adequate protection. 362(d)(1)
(2) Lack of equity in the property and property not necessary for reorganization. 362(d)(2)
SCOPE of the Automatic Stay?
Section 362(a)(3) stays any act “to exercise control over property of the estate.”
Exception to the Scope of the Automatic Stay?
Police Power Exception.
What is the Police Power Exception?
Permits a governmental unit to enforce its police or regulatory powers without interference from the stay.
But there is an exception, this exception does not apply where the governmental agency is seeking to enforce a money judgment in its favor (i.e., it is acting as a creditor).
Tests for the Police Power Exception:
(1) Pecuniary-Purpose Test: court looks to whether a government proceeding relates to public safety and welfare, which favors the application of the stay exception, or the government interests in debtors property, which does not.
(2) Pecuniary Advantage Test: Should the government succeed in winning a monetary judgment against [debtor], enforcement of the money judgment will take place in bankruptcy court. Consequently, the suit’s monetary claims would be subject to bankruptcy procedures just like any other claim against the debtors and would not, therefore, confer any advantage or government vis-a-vis other creditors.
