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Chapter 13 Bankruptcy

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Are you buried in debt? Are you constantly being harassed by creditors? Have you received a notice of foreclosure?

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Chapter 13 Bankruptcy Blog Post

The Magic of the Automatic Stay, Section 362(b): Part III

Continued from The Magic of the Automatic Stay: Part I and The Magic of the Automatic Stay: Part II

Based on public policy, there are certain acts set out in Section 362(b) for which the stay does NOT automatically arise to protect you or your property when your petition is filed. On the other hand, due to an evolving public policy, your will find that there are certain acts for which the stay does not automatically arise, but for which stay relief may nonetheless be allowed for specific purposes.

  1. Commencement or continuation of any criminal action or proceeding – 362(b)(1)
  2. Significant changes were made effective October 17,2005 to the interaction of the stay and debtors who had issues relating to paternity, child custody, visitation or divorce, or who had a Domestic Support Obligation as defined in the Bankruptcy Code. The enumerated exceptions relating to these issues are collected in 362(b)(2). One of the bigger surprises was that no longer did the stay automatically arise to shield a debtor from any state authority “withholding, suspending or restricting a driver’s license, or a professional or collection of child support or any other support obligation. Now it may be necessary for a debtor to appear before the Bankruptcy Judge to request that these licenses which everyone takes for granted (but which under state law are only privileges) be reinstated and the stay be reinstated. Other exceptions to stay relief to allow the ongoing collection of child support or any other support obligation which were a lessor surprise include the reporting to a consumer reporting agency of “overdue support owed by a parent”; tax offsets, that is, the interception of state or federal tax refunds to pay support obligations and the enforcement of the payment of medical obligations. All of the enumerated exceptions in 362(b)(2) are the reason that we request that our clients bring all related orders, judgments and settlement agreements when they come in for a free evaluation of their particular situation
  3. As a matter of public policy, the withholding of your income for the payment of any child support obligation continues without any interruption by the stay – 362(b)(2)(C).
  4. Due to public policy, Section 362(b)(3) overrides the prohibition set out in 362(a)(4) against the perfection of a lien in order to preserve the continuation of certain commercial transactions between the debtor and the creditor based on the expectations of the parties. This provision interacts with the 547(e)(2)(A) and allows the transaction to be completed and the interests of both the debtor and the creditor to be protected from any action by the trustee to assert any control over the property. An example would be the purchase of a car prior to filing the petition and the perfection of a lien on the title with the DMV within the grace period provided in 547(e)(2)(A)
  5. As a general rule, providing for your retirement is encouraged by public policy. As a result, the withholding of income and the collection of that income by your employer for a 401(k), pension or other retirement vehicle or for the payment of any loan against a retirement vehicle continues without any interruption by the stay. 362(b)(19). This is a good thing.
  6. Section 362(b)(22) operates in tandem with 362(a)(3) and 362(I) and comes into play when a state court judge has issued a write of possession before the petition is filed and the client rents or leases a residence. If the client is able to strictly comply with the requirements of 362(I), the stay can still operate to shield and protect the debtor’s right to remain in the residence and resume paying the monthly lease or rent payment without being evicted
  7. Also of interest to many of our clients is that 362(b)(26) provides that a taxing authority (IRS, GDR) can simply setoff (offset) an income tax refund for a taxable for a taxable period that ended before your petition is filed against an income tax liability for a taxable period that also ended before your petition is filed that also ended before your petition is [email protected] Consider this scenario: when you file your Chapter 7 bankruptcy petition, you schedule a debt to IRS for $3,000. When you file your federal tax return for the tax year ending December 31, 2012, you find that you are entitled to a federal tax refund of $3,000. Your bankruptcy petition is filed on February 22, 2013. Who gets the federal tax refund? IRS does because 362(b)(26)

We represent a number of clients who receive Social Security income and Medicare. I have yet to see it happen, but the stay does not apply to the Security of Health and Human Services in excluding a debtor from participating in Medicare or any other health care program - 362(b)(28)

Although there are other specific provisions of the Bankruptcy Code, Part II and III discuss those stay provisions set out in 362(a) and (b) that have applied to our clients. Our experienced attorneys are available to review your particular situation and identify whether a specific provision applies to you.

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