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11010-11011 Automatic Stay

11010. CONCEPT OVERVIEW
The automatic stay is one of the fundamental debtor protections provided by bankruptcy law. It stops collection efforts, harassment, and foreclosure actions against the debtor. In addition, it permits an orderly liquidation procedure under which all creditors are treated equally.

The voluntary filing of a petition by the debtor in bankruptcy automatically stays any enforced collection action. This includes any court action up to and including the filing of an abstract of judgment when a judgment has been rendered by a court prior to the filing of the bankruptcy proceeding (11 U.S.C. §362(a) 4 and 5).

A taxing authority may conduct an audit to determine the debtor's tax liability, may issue a notice of tax deficiency, and may demand payment from the debtor in specific situations (11 U.S.C. §362(b) 9 (A), (B), (D)).

A taxing authority may create and/or record a tax lien to secure the payment of any property tax coming due after the date of the bankruptcy petition. The right to lien applies to both secured property tax (Rev. & Tax. Code §2187) and unsecured property tax, which is secured by recording a certificate of delinquency (Rev. & Tax. Code §2191.3; 11 U.S.C. §362(b)(18)).

NOTE: Post-petition ad-valorem property taxes or any special assessment or special tax on real property, when due after the petition filing, are excluded from the provisions of the automatic stay (11 U.S.C. §362(b)(18)).

11011. RELIEF FROM STAY
The creditor with a prior lien on the debtor's property may file a motion with the court to obtain relief from the stay (11 U.S.C. §362(d)(f)). This provision is mainly for secured, private creditors; its use by a tax collector is recommended only when a debtor files multiple bankruptcies or prior to the recordation of the Notice of Power to Sell Tax-Defaulted Property, authorizing the tax collector to offer for sale the property outside the bankruptcy.

For Chapter 7 cases and prior to the confirmation of a Chapter 11 or 13 reorganization plan, the main requirements are that the liens exceed the market value of the property and that the property is not necessary to an effective reorganization. After a Chapter 11 or 13 plan has been confirmed, the tax collector may obtain relief from an automatic stay if substantial payments required by the plan are not made (In re Kim, 71 B.R. 1101; In re Rodney, 68 B.R. 444; also see Matter of McMartin Industries, 62 B.R. 718). Often, the filing of a motion for relief from stay results in an accommodation by the debtor or trustee.