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  4.  » What is an ‘automatic stay’ in a Chapter 11 bankruptcy?

What is an ‘automatic stay’ in a Chapter 11 bankruptcy?

One benefit to debtors who file a Chapter 11 bankruptcy is the automatic stay. This procedure temporarily halts all collection activities, including repossessions, foreclosures and judgments.

The automatic stay takes effect upon the filing of the bankruptcy petition and allows debtors to negotiate the terms of any settlements to creditors.

Secured creditors can seek court orders to grant them relief from the stay. In some cases, the court may order that the stay be lifted and the property foreclosed upon. In those instances, the proceeds from the property sale will be applied to the outstanding debt.

Most other unsecured debts will be held at bay by the automatic stay. This gives debtors some room to breathe while their debts get restructured into a manageable plan that they can repay over time.

If you are a small business owner who is faced with crushing debt, you may definitely benefit from filing for a Chapter 11 bankruptcy for your business. In many cases, your business can remain open and earning with an automatic stay. You will remain a debtor in possession during the pendency of the proceedings.

If, however, you operated your business as a sole proprietorship, your own personal assets and resources could potentially be in jeopardy, as you failed to establish a business identity that was distinct and separate from the business.

With the possible exception of tax law, there are few segments of the law as complex and intricate as bankruptcy law. As such, it is easy to make serious mistakes that can cost you dearly when filing your petition for bankruptcy. Seeking legal guidance from a Tampa bankruptcy law attorney is always advisable.