automatic stay in bankruptcy children gameIsn’t it amazing how kid’s games mirror the world in which we live as adults? Take, for example, the game of “red light, green light, 1-2-3.”

One child plays the role of the “stop light,” facing away from a line of other children. The stop light faces away says, “green light”. The other kids can move in until the stoplight says, “red light!” and turns around. If any of the others is still moving when the stop light turns around, they’re out.

Get everyone out and you win.

We leave behind the games when we go into the real world, but when you file for bankruptcy this particular bit of entertainment comes back in the form of the automatic stay.

Except that it’s not so much fun this time around.

Simply put, the automatic stay forces everyone to take the minute you file for bankruptcy. No more phone calls, no cards, no letters, no birthday cards, no lawsuits, no foreclosures. It’s as if the stop light has turned to red.

In this bankruptcy version of the game, there are a few key players.  Each one of the types of actions that are stopped by the automatic stay plays a role, so you should know about them.

  • Lawsuits For Pre-Bankruptcy Debts:  The automatic stay prevents people from beginning or continuing  any judicial, administrative, or other action or proceeding to recover a claim that arose before the case was commenced.
  • Enforcement Of Judgments From Before The Case:  When you file for bankruptcy you are protected from the enforcement, against you or any of your property (think about houses and cars in particular), of a judgment obtained before the case was filed.
  • Repossession And Foreclosure:  The automatic stay prevents a creditor from taking any act to obtain possession of property or to exercise control over property.
  • Post-Bankruptcy Liens On Your Property:  Once your bankruptcy case is filed, no creditor can take any act to create, perfect, or enforce any lien against the property you owned as of the time your case was filed.
  • Collections For Pre-Bankruptcy Debts:  The automatic stay prevents creditors from suing you, but also from taking any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.
  • Protection From The Tax Court:  If you’ve got any corporate debts for past due taxes, the automatic stay prevents then commencement or continuation of a proceeding before the United States Tax Court concerning a tax liability of a debtor that is a corporation for a taxable period the bankruptcy court may determine or concerning the tax liability of a debtor who is an individual for a taxable period ending before the date of the filing of the case.

There are limits to how and when the stay is enforced, just as there are rules in any game.  And perhaps it’s a bit cheeky to liken this as a game at all, but there’s something to it, I think: your creditors have rights and responsibilities, and so do you.

When you’re neck-deep in debt and trying to figure out which end is up, there’s something about being able to rely on your childhood memories to make sense of it all.  And once you fit it into your world view it’s a lot easier to get through it and see out the other end.