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The Automatic Stay

Chapter 11 §362 of the bankruptcy code provides an automatic stay at the moment the bankruptcy petition is filed.  The automatic stay is an automatic injunction or statutory order that automatically stays or halts all actions by creditors subject to certain exceptions, in collection of debts from the debtor who files a bankruptcy protection.

The automatic stay is an essential protection for a debtor provided by the bankruptcy laws.  It grants the debtor a significant break from the creditors by stopping all collection efforts, all harassment, and all foreclosure actions.  Some advantages of the automatic stay to a debtor:

  • Protect the debtor: An automatic stay provides a time frame in which all judgments, collection initiatives, foreclosures and repossession of real property are postponed and may not be followed by creditors.
  • Instant relief: The automatic stay creates at the moment a voluntary or in voluntary bankruptcy case is registered.  It instantly prevents all collection initiatives against the debtor.  There is no requirement of a specific court order.
  • Applicable to all:  All secured and unsecured creditors are excluded from collection initiatives to pre-petition debts.  However, the automatic stay never excludes a creditor from initiating action against other entities such as co-debtors, co-guarantors or insurers.
  • Serious action:  Creditors are limited by the automated stay even before the knowledge of the bankruptcy filing.  During the automatic stay period, the creditors are even restricted in sending payment reminder letters.  Disobedience of the automatic stay may be liable for damages

There are certain statutory exceptions to the automatic stay, i.e. certain actions are not stopped, including:

  • If there is any criminal proceedings against the debtor
  • If there is any governmental proceedings to exercise its executor or regulatory powers
  • If the activities by a lessor to acquire ownership of nonresidential real estate rented to a debtor under a concluded lease
  • If there is a pending procedure that relates to child or spousal support, or even establishment of paternity.

Chapter 11 provides certain relief from automatic stay to a secured creditor by filing a motion. Such motion for relief is common in Chapter 11 bankruptcy cases.  Moreover, the bankruptcy code allows certain application for fees such as fees for a trustee, a debtor’s attorney, or any professional appointed by the court at intervals of 120 days for interim payments and reimbursements.  In certain case, that requires extensive legal works, the court allows more frequent requests.

Inside The Automatic Stay