Section 362 Automatic Stay - Explained
What is the Automatic Stay in Bankruptcy?
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What is the automatic stay in bankruptcy?
The automatic stay under Section 362 of the Bankruptcy Code protects debtors from ongoing collection efforts (during the pendency of the bankruptcy case) against property included in the bankruptcy estate. Specifically, creditors are prohibited from the following conduct:
- efforts to collect, assess, setoff, or recover a claim against a debtor arising before the bankruptcy filing;
- commencing or continuing a judicial, administrative, or other action to collect the debt;
- enforcing a judgment against the debtors property;
- obtaining possession or control over assets included in the bankruptcy estate; or
- creating, recording, or enforcing a lien against the debtors property.
- Some limitations to the protections afforded under section 362 include:
- commencement or continuation of criminal actions and certain actions for domestic support;
- commencement or continuation of actions by governmental units pursuant to its regulatory power (such as tax liability); or
- creation or perfection of a statutory lien for certain types of real property.
The stay of proceeding will continue until the case is closed, dismissed, or discharge is granted. The court may also relieve or modify a stay generally or for a specific creditor for cause, for lack of adequate protection of a secured creditors interest, or if the debtor has no equity in the subject property and it is not necessary for the reorganization of the debtors estate. If a debtor violates a stay, any collection action can be undone. Further, if a debtor willfully violates the stay, the debtor may recover any attorneys fees incurred in challenging the collection action, as well as potential punitive damages.
Next Article: Proof of Claims in Bankruptcy Case Back to: BANKRUPTCY LAW
Why do you think the bankruptcy code provides the above-referenced protections under section 362? Are these protections adequate? Why or why not? Does the ability of the bankruptcy court to modify the 362 stay provision affect your opinion? Does this provision adequately protect debtor interests?
ABC Corp files for bankruptcy protection. 123 Corp is a debtor of ABC with a security interest filed in several pieces of ABCs equipment. 123 wants to understand its right to seek collection of the debt against ABC, including repossessing the equipment securing the debt. Can you explain the limitations on 123s ability?
- Bankruptcy Law (Intro)
- What is Bankruptcy?
- Insolvency - Definition
- What are the types of business bankruptcy?
- Chapter 9 Bankruptcy
- Chapter 12 Bankruptcy
- Chapter 15 Bankruptcy
- Who are the participants in the bankruptcy process?
- Key concepts behind the bankruptcy process?
- Absolute Priority Rule
- Pari Passu
- What rules govern the bankruptcy process?
- Bankruptcy Abuse Prevention and Consumer Protection Act
- American Bankruptcy Institute Definition
- What the authority of the bankruptcy court?
- What is the authority of the trustee (debtor in possession) in bankruptcy?
- Debtor in Possession
- What assets of the debtor are included in the bankruptcy estate?
- Bulk Sales Law
- What is the automatic stay in bankruptcy?
- What is a claim by creditors of the bankruptcy estate?
- What is voluntary and involuntary bankruptcy?
- What is the Chapter 7 bankruptcy process?
- What is the Chapter 11 bankruptcy process?
- How to File Bankruptcy for a Business
- Accept or reject contracts?
- Avoiding powers?
- Stay of Proceeding?
- Use of Business Assets?
- Post-Petition Financing?
- Bankruptcy Financing - Definition
- What is the appointment of a Trustee or Examiner in business bankruptcies?
- What is a Plan of Reorganization?
- Reorganization - Definition
- Subordinated Debt
- Preferred Debt
- What is Cramdown of a reorganization plan?
- To what extent does the bankruptcy process relieve a debtor's debts?