Automatic stay
Encyclopedia
In bankruptcy law, an automatic stay is an automatic injunction
that halts actions by creditor
s, with certain exceptions, to collect debts from a debtor
who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, , the stay begins at the moment the bankruptcy petition is filed. Secured creditors may, however, petition the bankruptcy court for relief from the automatic stay upon a showing of cause.
against a debtor's property, and (4) set-off
of indebtedness owed to the debtor before commencement of the bankruptcy proceeding.
A court may give a creditor relief from the stay if the creditor can show that the stay does not give the creditor "adequate protection" or if it jeopardizes the creditor's interest
in certain property. The court may give relief to the creditor in the form of periodic cash payments or an additional or replacement lien on the property.
Concerned that debtors may exploit some of the advantages of automatic stay provisions, Congress in 1994 provided some relief to certain creditors, such as creditors having a secured interest in a single real estate asset. Congress required that debtors in this situation either file a plan that has a reasonable chance of being accepted within a reasonable amount of time, or make monthly payments to each such secured creditor in the amount equal to interest at a current fair market rate on the value of the creditor's real estate.
In 2005, Congress added two more exceptions to the automatic stay provisions. These exceptions concern landlords seeking to evict tenants. First, any eviction proceedings in which the landlord obtained a judgment of possession prior to the filing of the bankruptcy petition may be continued. Second, eviction proceedings filed after bankruptcy proceedings are exempt if the proceeding involves evicting the tenant on the basis of using illegal substances or "endangerment" of the property.
Pursuant to the new provisions of BAPCPA, certain restrictions were added to section 362. If the debtor had a case dismissed in a case pending during the year before the bankruptcy case was filed, the automatic stay will expire to a certain extent unless the debtor obtains an order extending it within one month. If the debtor had two cases pending in the year prior to filing, the automatic stay does not go into effect unless the debtor files a motion.
Injunction
An injunction is an equitable remedy in the form of a court order that requires a party to do or refrain from doing certain acts. A party that fails to comply with an injunction faces criminal or civil penalties and may have to pay damages or accept sanctions...
that halts actions by creditor
Creditor
A creditor is a party that has a claim to the services of a second party. It is a person or institution to whom money is owed. The first party, in general, has provided some property or service to the second party under the assumption that the second party will return an equivalent property or...
s, with certain exceptions, to collect debts from a debtor
Debtor
A debtor is an entity that owes a debt to someone else. The entity may be an individual, a firm, a government, a company or other legal person. The counterparty is called a creditor...
who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, , the stay begins at the moment the bankruptcy petition is filed. Secured creditors may, however, petition the bankruptcy court for relief from the automatic stay upon a showing of cause.
Provisions
A filed bankruptcy petition immediately operates as an automatic stay, holding in abeyance various forms of creditor action against the debtor. Automatic stay provisions work to protect the debtor against certain actions from the creditor, including: (1) beginning or continuing judicial proceedings against the debtor, (2) actions to obtain debtor's property, (3) actions to create, perfect or enforce a lienLien
In law, a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation...
against a debtor's property, and (4) set-off
Set-off (law)
In law, a set-off is a statutory defense to the whole or to a portion of a plaintiff's claim. It had no existence under the English common law, being created by 2 Geo. II c. 22 for the relief of insolvent debtors, although set-off was recognized in equity...
of indebtedness owed to the debtor before commencement of the bankruptcy proceeding.
A court may give a creditor relief from the stay if the creditor can show that the stay does not give the creditor "adequate protection" or if it jeopardizes the creditor's interest
Security interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
in certain property. The court may give relief to the creditor in the form of periodic cash payments or an additional or replacement lien on the property.
Concerned that debtors may exploit some of the advantages of automatic stay provisions, Congress in 1994 provided some relief to certain creditors, such as creditors having a secured interest in a single real estate asset. Congress required that debtors in this situation either file a plan that has a reasonable chance of being accepted within a reasonable amount of time, or make monthly payments to each such secured creditor in the amount equal to interest at a current fair market rate on the value of the creditor's real estate.
In 2005, Congress added two more exceptions to the automatic stay provisions. These exceptions concern landlords seeking to evict tenants. First, any eviction proceedings in which the landlord obtained a judgment of possession prior to the filing of the bankruptcy petition may be continued. Second, eviction proceedings filed after bankruptcy proceedings are exempt if the proceeding involves evicting the tenant on the basis of using illegal substances or "endangerment" of the property.
Pursuant to the new provisions of BAPCPA, certain restrictions were added to section 362. If the debtor had a case dismissed in a case pending during the year before the bankruptcy case was filed, the automatic stay will expire to a certain extent unless the debtor obtains an order extending it within one month. If the debtor had two cases pending in the year prior to filing, the automatic stay does not go into effect unless the debtor files a motion.
External links
- Commentary on Bankruptcy Provisions and Automatic Stay - Gary G. Neustadter, Santa Clara University Law School