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The Criminal Exception to the Automatic Stay

March 2nd, 2018 at 8:00 am

The automatic stay immediately stops most collection actions when you file bankruptcy. But it doesn’t stop a “criminal action or proceeding.”  


The Automatic Stay

This protection against debt collection is crucial because it gives you a necessary financial break. It’s effective because it is so fast and broad in its coverage.

It’s fast because the protection goes into effect simply by your act of filing bankruptcy. It becomes binding on your creditors without any further action by the bankruptcy court.

It’s broad because almost all debts are covered. They’re generally covered even if the debt can’t be discharged—written off—in bankruptcy. For example, if you owe a very recent income tax debt, it can’t be discharged. And yet the automatic stay immediately stops the IRS and state tax collector just like any other creditors.

But while the automatic stay is broad there are some specific kinds of debts it does not protect you from. And because the automatic stay is such a crucial benefit to a person filing bankruptcy, it’s very important to know these exceptions.  You need to know which debts a creditor CAN continue to collect in spite of your bankruptcy filing.

The Debts NOT Protected by the Automatic Stay

Bankruptcy’s automatic stay does not protect you from:

1) criminal debts and proceedings

2) certain family court proceedings

3) child and spousal support obligations

4) certain income and business tax collection procedures.

We’ve covered all of these exceptions last month, except for the first one. We cover this today.

“Criminal Action or Proceeding against the Debtor”

The U.S. Bankruptcy Code says that your bankruptcy filing “does not operate as a[n automatic] stay–… of the commencement or continuation of a criminal action or proceeding against the debtor.” Section 362(b)(1) of the Bankruptcy Code. This means that you have no bankruptcy automatic stay protection from criminal matters of any sort.

So, bankruptcy does not prevent a district attorney or other governmental authority from starting or continuing a criminal case against you. That includes any step of a criminal case: arrest, indictment, plea bargaining, trial, sentencing, appeal, incarceration, probation, and parole. The automatic stay simply does not apply to criminal matters.

This also includes any efforts by the authorities to collect any criminal debts. These include fines, restitutions, and any of the many possible criminal fees and charges that a criminal court may impose upon you.

Careful: “Criminal” Is Broader than You Think

This exception for criminal debts doesn’t apply only to felonies and misdemeanors. It may apply to much more commonplace matters that you might not consider “criminal.” For example, included may be certain traffic infractions and their related court proceedings and fines.

This can get genuinely confusing because the line between criminal and civil proceedings can get blurry. Again in the traffic court arena, what may be considered a criminal fine vs. a civil violation can vary from state to state. Plus there are situations that can involve both civil and criminal sides. The civil side would be stopped (at least temporarily) by a bankruptcy filing; the criminal side would not.

The Bottom Line

Tell your bankruptcy lawyer about any potential criminal proceedings and/or debts during your first meeting. You’ll learn quickly whether you’re dealing with criminal vs. civil debts and/or proceedings. Then even if they’re criminal in nature, bankruptcy may still be able to help a lot. 


Written by Staff Writer

March 2nd, 2018 at 8:00 am

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