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Consumer Bankruptcy Law and Practice: 9.4.4.4 Interception of Tax Refunds

The interception of tax refunds to pay student loans or other debts being collected by the government is another example of an act that is stayed.166 Although it is sometimes not easy to determine the date the intercept actually occurred, if it occurred after the bankruptcy case was filed it is normally possible to have the intercepted funds returned to the debtor.167 The Internal Revenue Service (IRS) has been one of the most frequent adversaries in litigation regarding these issues.

Consumer Bankruptcy Law and Practice: 9.4.6.2 Criminal Proceedings

The stay does not automatically prohibit commencement or continuation of criminal proceedings.197 Thus, a criminal case based upon a bad check can continue without violation of the stay.198 This exception, however, does not necessarily protect a private creditor who instigates such proceedings in an attempt to collect a debt.199 The exception also does not include the collection of a monetary liability imposed as part of a probation program or as r

Consumer Bankruptcy Law and Practice: 9.4.6.3 Family Law Exceptions

The 2005 amendments to the Code created exceptions to the automatic stay provisions for proceedings concerning child custody, visitation rights, domestic violence, and divorce (to the extent the divorce proceeding does not seek to divide property of the estate).207 These exceptions are common sense corrections for proceedings that do not have an impact on bankruptcy. Many people had probably assumed they were not stayed, though in fact they usually were, because they were legal proceedings that could have been commenced prior to petition.

Consumer Bankruptcy Law and Practice: 9.4.6.4 Continued Withholding of Income for Loans from Retirement Funds

Another exception enacted in 2005 authorizes the continued withholding of wages for repayment of retirement fund loans.223 The wage withholding must be for repayment of a loan from a plan under section 408(b)(1) of the Employee Retirement Income Security Act (ERISA) or that is subject to section 72(p) of the Internal Revenue Code, or from a thrift savings plan in the Federal Employee’s Retirement System.

Consumer Bankruptcy Law and Practice: 9.4.6.5.2 In rem orders

Another provision added by the 2005 Act allows creditors with claims secured by real property to seek in rem stay relief in certain limited circumstances.228 If the court enters an in rem order under new section 362(d)(4), and the order is properly recorded, section 362(b)(20) provides that the stay does not apply with respect to the particular property covered by the order in a later case filed within two years after the date of the order.229

Consumer Bankruptcy Law and Practice: 9.4.6.6.2 Prepetition judgment for possession

Under section 362(b)(22), the eviction of a debtor from residential property in which the debtor resides as a tenant under a lease or rental agreement is not stayed by section 362(a)(3) if the lessor has obtained a judgment for possession prior to the filing of the bankruptcy petition, unless the debtor meets certain conditions.

Consumer Bankruptcy Law and Practice: 9.4.6.8 Setoff of Tax Refunds

Section 362(b)(26) permits taxing authorities to set off tax refunds for prepetition tax periods against prepetition tax debts. If there is a pending action to determine tax liability, the taxing authority may hold the refund pending the outcome of the action. However, on motion by the trustee and after notice and a hearing, the court may order turnover of the refund, but only if the taxing authority is granted adequate protection for any secured claim it has under section 506(a) of the Code based on its setoff rights.

Consumer Bankruptcy Law and Practice: 9.6.5 Other Possible Remedies

The same actions that can be penalized as violations of the automatic stay might also be unfair trade practices under state law or violations of federal debt collection protections.358 In some cases it may be a good idea to assert such claims in the alternative because of the availability of enhanced damages. But, in any event, the bankruptcy court has exclusive jurisdiction over sanctions for violation of the automatic stay itself.359

Consumer Bankruptcy Law and Practice: 9.7.3.2.1 For cause

The first of the grounds listed in the statute for relief from the stay is a catchall. It provides that the stay may be lifted “for cause.” While it is clear that a lack of adequate protection, as discussed below, is one such cause, the provision is meant to allow courts considerable discretion to grant relief for other reasons. Thus, legal proceedings against the debtor that have nothing to do with bankruptcy would ordinarily be allowed to go forward. Similarly, the court may lift the stay with respect to other activities that will have no effect on the bankruptcy.

Consumer Bankruptcy Law and Practice: 9.7.3.2.4 Leases involving residential property

Special problems are posed under the stay provisions in cases that involve leases of residential property.513 While it may be quite possible for a debtor to give a lessor adequate protection, perhaps in the form of a security deposit, it is usually difficult to argue that the debtor has equity in the leased premises unless the debtor has a long-term lease at a rate below current market values, or receives other benefits from remaining in possession, such as the special rights available in public housing or in a rent-control jurisdiction.

Consumer Bankruptcy Law and Practice: 9.7.3.3.2 Other tactics

Discovery may be helpful, as always, in narrowing the issues or pointing up flaws in an opponent’s case. In any case, because of the time deadlines involved in stay litigation, a motion for expedited discovery is usually necessary to complete discovery within the thirty days before the preliminary hearing. One positive result of such a motion is often a quick stipulation from the party seeking relief from the stay agreeing that the hearing (and the stay) can be continued beyond the thirty-day deadline.

Consumer Bankruptcy Law and Practice: 9.7.3.3.3 Stays pending appeal

If an appeal is contemplated after the automatic stay is terminated by order of the court or otherwise, it may be essential to obtain a stay pending appeal. The rules provide a fourteen-day delay in the effectiveness of an order granting relief from stay in order to provide time to seek a stay pending appeal, but a court may order otherwise.537 Therefore, if a possible appeal is contemplated, a debtor should argue against any language in the court’s order changing the normal fourteen-day delay of relief from the stay.

Consumer Bankruptcy Law and Practice: Introduction

The Official Forms necessary to commence a case are reproduced in Appendix D, supra. These forms are included as sample completed bankruptcy schedules illustrating how to prepare an initial filing. Other Official Forms are included in blank format.

Consumer Bankruptcy Law and Practice: Exhibit A

Exhibit A

Debtor’s Request for Production of Documents Directed to [name] Mortgage Company

The Debtor, [name], by her counsel, and pursuant to Fed. R. Bankr. P. 2004, makes this request for production of documents directed to [name] Mortgage Company. Defendant is requested to produce the documents described below at the Rule 2004 examination to be held as ordered by the Bankruptcy Court.

DEFINITIONS