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What is the automatic stay in Chapter 11 bankruptcy?

When Texans are having financial issues with a small business, Chapter 11 bankruptcy is always an option. This can help with debt relief, debt reorganization and getting back on stronger financial footing to either move on or restart the business. What is important as part of the process is to understand the various aspects that might arise and could be somewhat confusing. One is the automatic stay. Having a grasp of this can be a key to a successful Chapter 11 filing.

With the automatic stay, there will be a certain amount of time in which the judgments, collection activities, foreclosure on property and repossession of property will be halted. During this time, the creditors are not able to pursue the debtor or seek restitution on a claim that came up prior to the Chapter 11 filing. This goes into effect as soon as the debtor files for Chapter 11.

There are certain actions that can be taken under Chapter 11. The debtor will have a break as negotiations are ongoing to try and settle the problems that the debtor is having. There are some situations in which a secured creditor will be able to receive a court order that will grant them relief from the automatic stay. An example would be if the debtor does not have any equity in a property and the property is not needed for the business reorganization. The secured creditor can ask for the automatic stay to be lifted and commence with a foreclosure.

A trustee or a legal representative of the debtor has the right to apply for fees while the case is ongoing. Interim compensation can be provided at intervals of 120 days. It can be more frequent than that at the court's discretion. Ordinary costs of an ongoing business can still be paid.

Filing for Chapter 11 bankruptcy can be complex, and such factors as the automatic stay can be worrisome to debtors. A lawyer can help with all of these issues and assuage the fears and concerns that a person might have prior to moving forward with a Chapter 11.

Source: uscourts.gov, "Chapter 11 -- Bankruptcy Basics -- The Automatic Stay," accessed on Sept. 27, 2016

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