Understanding the Exceptions to the Automatic Stay in Bankruptcy

The automatic stay is one of the most powerful protections in bankruptcy law. When a debtor files for bankruptcy, the automatic stay goes into effect, immediately halting most collection efforts, lawsuits, and other actions by creditors. It gives the debtor breathing room to reorganize under Chapter 11 or repay debts under Chapter 13, and it protects their assets during liquidation under Chapter 7. However, like most rules, the automatic stay has exceptions. Certain actions are not stopped by the stay, and it's essential to understand what those exceptions are.

Here, we’ll break down the key exceptions under 11 U.S.C. § 362(b) and explore when creditors can proceed with specific actions, even during bankruptcy.

1. Criminal Proceedings (§ 362(b)(1))

The automatic stay does not apply to criminal actions against the debtor. This means that even if a debtor files for bankruptcy, criminal cases such as prosecution, sentencing, or related investigations can continue without interruption. Bankruptcy cannot be used as a shield to avoid facing criminal consequences.

For example, if someone files for bankruptcy after being charged with a crime, the bankruptcy court will not halt the criminal proceedings, ensuring that the debtor remains accountable under the law.

2. Family Law Matters (§ 362(b)(2))

Bankruptcy does not stop certain family law proceedings, particularly those related to:

• Establishing paternity

• Setting or modifying child support or alimony

• Child custody or visitation

• Divorce proceedings, except when it involves dividing property of the bankruptcy estate

Importantly, actions to collect domestic support obligations (like child support) from property that is not part of the bankruptcy estate can continue. This ensures that essential family obligations are not neglected just because someone files for bankruptcy.

3. Governmental Police and Regulatory Powers (§ 362(b)(4))

The government’s police or regulatory powers are not subject to the automatic stay. This allows governmental units to continue enforcing laws related to health, safety, and welfare, even if the debtor is in bankruptcy. For example, environmental regulations, licensing enforcement, or zoning laws can still be enforced against the debtor.

However, the enforcement of money judgments by the government remains subject to the stay, meaning the government can pursue regulatory actions but cannot seize assets to satisfy a debt without further court approval.

4. Tax-Related Proceedings (§ 362(b)(9))

The automatic stay does not prevent certain tax-related actions by the government. These include:

• Tax audits

• Issuance of a notice of tax deficiency

• Demanding tax returns

• Assessing taxes

However, collecting taxes from the debtor is still subject to the automatic stay. The IRS or other tax authorities can continue to determine tax liabilities but cannot collect taxes without following the bankruptcy process.

5. Actions Involving Co-Debtors (§ 1301)

In Chapter 13 cases, a special co-debtor stay protects individuals who may be jointly liable with the debtor on certain debts, such as co-signers or guarantors. However, creditors may request relief from this stay if the co-debtor is primarily responsible for the debt or if the Chapter 13 plan does not propose to pay the debt in full.

6. Certain Property Transactions (§ 362(b)(3))

Transactions related to the perfection, continuation, or enforcement of liens on property may continue under specific circumstances. For instance, a creditor can perfect a lien on estate property, provided it is done within a particular timeframe allowed by bankruptcy law.

Conclusion

While the automatic stay is a broad protection, 11 U.S.C. § 362(b) outlines several critical exceptions that allow certain actions to proceed during bankruptcy. Criminal prosecutions, family law matters, regulatory actions, and specific tax proceedings can continue, ensuring that bankruptcy does not unduly interfere with legal responsibilities or governmental enforcement efforts.

For debtors, understanding these exceptions is vital to knowing what protections they have and where they remain vulnerable. For creditors, it’s essential to recognize when they may proceed with their actions even after a bankruptcy filing. Ultimately, the automatic stay offers significant protection, but it’s not absolute—some legal and regulatory actions are allowed to continue.