The automatic stay that arises on a bankruptcy filing generally stops all litigations and collection actions against the debtor. This includes activity by local, state, and federal governments. General experience with the §362 automatic stay in bankruptcy proceedings might lead counsel who are not bankruptcy specialists to conclude that the stay covers all parties in the same way, including government entities. The correct answer is both yes—and no.

There are, in fact, instances where a government attempting to enforce public policy, regulations, or even criminal statutes against the debtor can use an exception to the automatic stay for that purpose. Enacted when the Bankruptcy Code became law in 1978, counter-intuitively to the general purpose of a bankruptcy proceeding, this exception applies even if part of the enforcement action involves seeking money or property from the debtor.

This "police power" exception to the automatic stay continues to be a source of litigation and bedevilment for the courts to the present day because it is often not clear whether governments are engaging in enforcement actions or simply collecting money for the relevant public treasury.