11.5.2 The Automatic Stay

The automatic stay is a fundamental cornerstone of bankruptcy law,²⁵² triggered instantly upon the filing of a bankruptcy petition. It stays almost all actions against the debtor and the debtor’s property.²⁵³ With few exceptions, the automatic stay stops creditors from taking collection actions, pursuing or continuing a court case against the debtor, or seizing any property of the debtor based on debts that arose before the debtor filed the bankruptcy petition.

The stay remains in place unless the bankruptcy court terminates it or until other events specified in the Bankruptcy Code occur (for example, case dismissal or discharge). Actions taken in violation of the stay are void, and creditors taking such action may be punished by contempt. The Bankruptcy Code provides for actual damages and attorney fees for willful stay violations.²⁵⁴

The automatic stay does not prohibit the commencement or continuation of criminal proceedings.²⁵⁵ Several courts have held that the automatic stay does not apply to enforcement of sentencing orders, so probation revocation based on a failure to pay a restitution obligation does not violate the stay.²⁵⁶ There was no stay violation when a court, after learning of the debtor’s intent to discharge criminal justice debt in bankruptcy, vacated the prior sentence of a fine in lieu of jail and ordered the debtor to jail.²⁵⁷

Less clear is whether the automatic stay can forestall garnishment or execution on a debtor’s property to collect criminal justice debt. The Mandatory Victims Restitution Act (MVRA) grants the federal government authority to use civil procedures to enforce penal fines notwithstanding other federal law,²⁵⁸ and courts conclude that the MVRA trumps the automatic stay.²⁵⁹ This allows the federal government (but not state governments) to garnish a debtor’s wages or benefits without first obtaining the bankruptcy court’s permission.

There are good arguments that these courts are wrong and that the stay should apply, since the MVRA provides that the statute is subject to the “practices and procedures” for enforcing debts under state and federal law. The automatic stay, which limits the timing of collection, is a procedural mechanism that is not in conflict with the MVRA’s substantive provisions.²⁶⁰ Furthermore, the automatic stay protects the interests of debtors and creditors alike.²⁶¹ Those interests are directly undermined by permitting the government to ignore the stay and frustrate the orderly bankruptcy process.

The MVRA should not override bankruptcy law as to property that the debtor owns with a criminal defendant if the debtor has not been fined in the criminal proceeding. In United States v. Henricks,²⁶² the government argued that the automatic stay did not prohibit it from executing upon property that the debtor jointly owned with the criminal defendant, who was her spouse. The debtor had not been charged or convicted of the crime and her spouse had not filed bankruptcy. The court held that, because the MVRA is limited to “property or rights to property of the person fined,” it did not prevent application of the automatic stay to property of the debtor’s bankruptcy estate as she had not been fined in the criminal case. The court also held that the provision of the MVRA permitting enforcement against co-owned property to the extent permitted under state law does not trump federal bankruptcy law. The MVRA is not applicable to state actors, and therefore the automatic stay should limit efforts by non-federal entities to collect criminal justice debts through traditional civil mechanisms.²⁶³ However, some courts have concluded that enforcement actions to collect criminal justice debt are a continuation of criminal proceedings within the scope of that exception to the automatic stay or that such efforts are an exercise of the government unit’s police and regulatory power also excepted from the automatic stay.²⁶⁴

By contrast, civil contempt proceedings, even if they can result in incarceration, are generally not excepted from the automatic stay. Plainly, civil contempt or bench warrants based on civil contempt do not fall within the criminal exception to the stay.²⁶⁵ Bankruptcy courts have repeatedly held that civil contempt proceedings, which allow the debtor to purge themself of contempt by paying the amount due to the creditor, are stayed.²⁶⁶ However, some courts have held that another stay exception dealing with government regulatory actions may apply to civil contempt proceedings.²⁶⁷

Many states employ a debtor’s exam or supplementary process, by which the debtor may be examined if they fail to pay a civil judgment, to determine if the debtor has an ability to pay.²⁶⁸ Creditors have been known to abuse this process by setting frequent debtor’s exams even though the debtor’s circumstances have not changed or scheduling the exam in a distant location. If the debtor fails to appear for the hearing or exam, the court may issue a bench warrant. The automatic stay has been found to bar execution of warrants issued under such circumstances in a civil judgment setting.²⁶⁹

Finally, criminal justice debt derived from indigence rather than culpability—for example, indigent defense fee debt—may necessitate different treatment under the stay than other criminal justice debt like victim restitution or fines. Debt that is essentially payment for services should be treated largely the same as private sector debt and therefore should be subject to the automatic stay and other protections applicable to ordinary civil judgment debtors.