2 June 2011
In a prior post, the subject of what the automatic stay was and how it generally worked was addressed. Here we go into some detail about the automatic stay’s effect on criminal charges.
To clarify, the types of criminal charges we are discussing is typically named or described as: larceny (by trick), something involving fraud, “hot check” charges, and the like. These types of charges sometimes have a prerequisite of a failure of the accused to pay the amount at issue after the initial event, or generally can be solved by payment of the debt. E.g. Mass. Gen. Laws. ch. 266 § 37. Some times after the charge is issued the prosecution offers to dismiss the case or a concession for payment of the alleged debt to the victim. These types of charges/prosecutions are sometimes criticized for turning the criminal justice system into a debt collection scheme.
The answer to the question is: probably not, but under limited circumstances, possibly. Assuming you have read the prior post for some background on the automatic stay, we will address the exception for criminal charges found in 11 U.S.C. § 362(b)(1). Is states the stay does not apply to “the commencement or continuation of a criminal action or proceeding against the debtor.” This is pretty straight forward language.
Nonetheless, some courts have found some exceptions to this exception, like when the criminal prosecution is made in bad faith or its primary purpose is the collection of a pre-petition debt. In re Byrd, 256 B.R. 246, 251-52 (Bankr. E.D.N.C. 2000)(discussing cases). But the majority approach is that even if the motive is bad or to collect a debt, the stay does not apply. In re Bartel, 404 B.R. 584, 590 (B.A.P. 1st Cir. 2009)(collecting cases).
There is another potential and significant hurdle to applying the automatic stay to state criminal proceedings that has become known as the Younger doctrine. It stems from a United States Supreme Court case stating that federal courts should abstain from enjoining state court criminal proceedings absent very compelling and narrow circumstances. Younger v. Harris, 401 U.S. 37, 46 (1971). It has been followed and adhered to since it was issued.
In analyzing this subject, there is also a distinction between State acts, and the acts of private persons (creditors). It appears it is one could make a stronger argument that the automatic stay might apply in some circumstances to the latter. In re Byrd, 256 B.R. at 252; In re Bartel, 404 B.R. at 590 (noting distinction). This should be of interest to the creditor seeking to pursue criminal charges against a debtor or soon-to-be-debtor in bankruptcy.
If a debtor seeks to establish the position that the automatic stay does apply to a criminal process, they have a difficult road to hoe and an analysis is necessary. If a creditor is concerned whether its participation in the criminal process may run afoul of the automatic stay, a similar analysis is also necessary. For either of these parties, much is at stake. If you have either of these questions, or have a different but related concern, feel free to give us a call.
Thursday, June 2, 2011
What is the automatic stay in bankruptcy?
2 June 2011
When someone files for bankruptcy the automatic stay arises. 11 U.S.C. § 362(a). It is just what the name says. It is automatic, which means no further acts are needed for its arising. Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir. 1994). And it is a stay, which means a temporary stop, (but not a permanent stop, that may come from another code section), to various acts to collect from the debtor or the debtor’s property. Actions taken in violation of the automatic stay are void. In re Soares, 107 F.3d 969, 976 (1st Cir. 1997); In re Best Payphones, Inc., 279 B.R. 92 (Bankr. S.D.N.Y. 2002). The automatic stay is powerful. Violation of it after notice of the bankruptcy filing can result in actual damages being awarded against the bad actor, including attorney’s fees and costs. 11 U.S.C. §362(k). If the acts are “willful” the court is empowered to award punitive damages. Id. The automatic stay also gives the debtor some breathing room. Most importantly, it allows the bankruptcy process to work and properly administer any distribution, if any. Without it, the bankruptcy process simply would not work.
However there are exceptions to the automatic stay. 11 U.S.C. §362(b). A study of the exceptions to the automatic stay could merit a college course in and of itself and exceeds the scope of this post. But, a non-exhaustive list of the exclusions, and generally, are: criminal charges, most domestic support issues, paternity claims, tax intercepts, tax determinations and audits, and many official State actions. Id.
Because the stakes are high, for both debtors who could be mistaken that the automatic stay applies when it does not, and for creditors that may think that it does not apply when in fact it does, it pays to obtain a professional opinion, especially for particular situations. If you have any questions on the scope or particular applicability of the automatic stay in bankruptcy, please feel free to give this office a call.
When someone files for bankruptcy the automatic stay arises. 11 U.S.C. § 362(a). It is just what the name says. It is automatic, which means no further acts are needed for its arising. Sunshine Dev., Inc. v. FDIC, 33 F.3d 106, 113 (1st Cir. 1994). And it is a stay, which means a temporary stop, (but not a permanent stop, that may come from another code section), to various acts to collect from the debtor or the debtor’s property. Actions taken in violation of the automatic stay are void. In re Soares, 107 F.3d 969, 976 (1st Cir. 1997); In re Best Payphones, Inc., 279 B.R. 92 (Bankr. S.D.N.Y. 2002). The automatic stay is powerful. Violation of it after notice of the bankruptcy filing can result in actual damages being awarded against the bad actor, including attorney’s fees and costs. 11 U.S.C. §362(k). If the acts are “willful” the court is empowered to award punitive damages. Id. The automatic stay also gives the debtor some breathing room. Most importantly, it allows the bankruptcy process to work and properly administer any distribution, if any. Without it, the bankruptcy process simply would not work.
However there are exceptions to the automatic stay. 11 U.S.C. §362(b). A study of the exceptions to the automatic stay could merit a college course in and of itself and exceeds the scope of this post. But, a non-exhaustive list of the exclusions, and generally, are: criminal charges, most domestic support issues, paternity claims, tax intercepts, tax determinations and audits, and many official State actions. Id.
Because the stakes are high, for both debtors who could be mistaken that the automatic stay applies when it does not, and for creditors that may think that it does not apply when in fact it does, it pays to obtain a professional opinion, especially for particular situations. If you have any questions on the scope or particular applicability of the automatic stay in bankruptcy, please feel free to give this office a call.
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