The Oklahoma Bar Journal December 2023

equitable, secured, or unse cured; or

(B) right to an equitable remedy for breach of perfor mance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, unma tured, disputed, undisputed, secured, or unsecured. 4

One common misconception is that if you believe your debt is not dischargeable in a bankruptcy, then somehow the automatic stay does not apply. Nowhere does Section 362 limit the automatic stay to nondischargeable claims. Even the IRS and student loan lenders are stopped by the automatic stay.

In other words, if the bankrupt debtor owes you or your client money, the automatic stay stops you from collecting it. One com mon misconception is that if you believe your debt is not discharge able in a bankruptcy, then some how the automatic stay does not apply. Nowhere does Section 362 limit the automatic stay to non dischargeable claims. Even the IRS and student loan lenders are stopped by the automatic stay. The automatic stay also applies to stay pending litigation in which the debtor is a party. Section 523(a) (1) is the most common subsection for staying litigation, and it stays all litigation attempting to collect a claim against the debtor. The ques tion then becomes, what happens in cases with multiple defendants? Clearly, the case must be stayed as to the debtor, but what about the other defendants? The majority rule is that the automatic stay only applies to the debtor. 5 There is a statutory exception to that if the debtor filed a Chapter 13 bankruptcy that extends the automatic stay to co-debtors if the debt involved is a consumer debt. 6 That is not going to apply in most cases, leaving us with the general rule that the auto matic stay only stays litigation as to

(b) The filing of a petition under section 301, 302, or 303 of this title, or of an applica tion under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay— (1) under subsection (a) of this section, of the com mencement or continuation of a criminal action or pro ceeding against the debtor;

the debtor. There is what is sup posed to be a “narrow exception” to that rule that extends the stay to co-defendants “when there is such identity between the debtor and the third-party defendant that the debtor may be said to be the real party defendant and that a judg ment against the third-party defen dant will in effect be a judgment or finding against the debtor.” 7 Obviously, there are instances when a bankrupt debtor is a party to litigation, but the litigation is not intended to collect a claim against the debtor. In those cases, each subsection of §362(a) needs to be read carefully with the specific facts in mind, but continue read ing into §362(b) because just as Subsection (a) lists when the stay applies, Subsection (b) lists when the stay does not apply. There are quite a few subsections listing fact patterns when the auto matic stay does not apply. Of those, the first ones are the most common:

(2) under subsection (a)—

(A) of the commencement or continuation of a civil action or proceeding—

(i) for the establish ment of paternity;

(ii) for the establish ment or modification of an order for domes tic support obligations;

Statements or opinions expressed in the Oklahoma Bar Journal are those of the authors and do not necessarily reflect those of the Oklahoma Bar Association, its officers, Board of Governors, Board of Editors or staff.

26 | DECEMBER 2023

THE OKLAHOMA BAR JOURNAL