This page explaining the Bankruptcy Automatic Stay is meant to provide general legal information about common terms that our clients or those interested in bankruptcy may see. This is not meant to provide any advice to anyone seeking legal opinions on their case. Those considering a bankruptcy filing or wondering if bankruptcy provides legal rights that would assist them should consult an experienced bankruptcy attorney by scheduling a free telephone case evaluation.
The phrase “automatic stay” is used all the time in the bankruptcy courts and actually represents one of the most powerful protections offered by the bankruptcy code.
The “automatic stay” is found in 11 U.S.C. §362 which provides that the filing of a bankruptcy petition “operates as a stay, applicable to all entities, of” a variety of actions which might be taken by a creditor or debt collector. The most common way we can paraphrase the acts are actions to collect a debt. Below, we discuss some of the specific types of actions – or potentially “non-actions” – which are impacted by the “stay”.
Section 362 provides for a broad stay of litigation, lien enforcement and other actions, judicial or otherwise that are attempts to enforce or collect prepetition claims. It also stays a wide range of actions that would affect or interfere with property of the estate, property of the debtor or property in the custody of the estate. 3 Collier on Bankruptcy P 362.01 (16th 2019)
The “automatic” part of the stay is the idea that the filing of a bankruptcy petition alone “operates as a stay”. A debtor does not need to do anything else other than file the bankruptcy petition.
Congress enacted the Bankruptcy Reform Act of 1978 which brought about the basic construction of the modern Bankruptcy Code. Though the concept of a “stay” may have existed prior to 1978, the 1978 Act established the “automatic stay” which still exists today.
The stay is meant to provide the debtor with relief from the pressure and harassment of creditors seeking to collect their claims and protect property that may be necessary for the debtor’s fresh start and. In reorganizing cases – Chapter 11, Chapter 12, or Chapter 13 bankruptcy petitions – the stay also provides “breathing space” to let the debtor focus on the proposed reorganization. The stay also protects creditors from the actions of other creditors who may seek to pursue the debtor’s assets to promote the bankruptcy goal of creditors receiving equal distributions.
Some common examples of how the automatic stay imposed by filing a bankruptcy petition:
This is not meant to be a complete list but some common examples.
There are some examples of petitions which do not trigger an “automatic stay” or where the stay does not stop collection efforts.
The automatic stay is one of the more powerful legal rights offered to debtors filing for bankruptcy protection. As this information is not intended as legal advised, we encourage anyone who believes that they may benefit from learning their rights to contact an experienced attorney to learn about their rights.