Guiding You Through Your Important Legal Needs

What is the automatic stay in a Chapter 11 bankruptcy?

Debtors in Warrendale, and throughout Pennsylvania, will have their own reasons for filing Chapter 11 bankruptcy. One that is frequently cited is to stop the debt collection attempts. These can be notoriously aggressive and cause fear and consternation in the debtor. When filing for Chapter 11, one of the benefits is the automatic stay. Understanding what this is and how it is beneficial is important to most cases.

The automatic stay gives the debtor time to stop collectors, suspend judgments, foreclosures and repossessions. When the petition is filed, this will happen automatically.

Creditors and debt holders can still take some items, even with the automatic stay. What this does is give the debtor a break from the collection practices. While this is ongoing, there can be a negotiation to help the debtor get the finances on stronger ground.

A secured creditor can get an order from the court that gives relief from the automatic stay. If, for example, there is no equity in the debtor’s property and a reorganization can take place without that property, then the secured creditor can request that the stay be lifted to let the foreclosure proceed.

Property can be sold, and the proceeds from the sale can go toward the debt. There is also the option for applications for fees to be made by certain professionals, as the case is ongoing. Within intervals of 120 days, these professionals can seek interim compensation and reimbursement. If it is a larger Chapter 11, these can be done more frequently.

Chapter 11 is a strategy for debt reorganization, but there are certain rules that go along with it that are different from other bankruptcy chapters. With an automatic stay, it does not mean that the debt collectors will stop their efforts to collect on what they claim to be owed. What it does do is give the debtor a chance to step back and try to come up with a plan. For help with a Chapter 11, to stop creditor collection attempts and get back on better financial ground, a legal professional with a wide array of experience in bankruptcy can help.

Source: USCourts.gov, “Chapter 11 — Bankruptcy Basics — The Automatic Stay,” accessed on Aug. 8, 2017

FindLaw Network