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How automatic bankruptcy stay can save your business

On Behalf of | Jul 19, 2023 | Bankruptcy Law |

Most business owners in the New York area regard the filing of a bankruptcy petition as a conclusive admission that the business has failed. While a bankruptcy petition is in fact akin to an admission of failure, the United States Bankruptcy code contains several provisions that can help rescue a business (or an individual) from complete financial oblivion. One of the most important of these provisions is the automatic stay issued by the Bankruptcy Court whenever a petition for a declaration of bankruptcy is filed.

What is the automatic stay?

A stay is an order from a court directing the parties to whom the order is addressed to refrain from taking any actions described in the order. In the case of a bankruptcy proceeding, the federal bankruptcy code directs the clerk of bankruptcy court to automatically issue a stay to all creditors of the party filing the petition to refrain from attempting to collect any debt that the petitioner owes to any creditors who are identified in the petition.

The stay applies to and prohibits any court action to enforce a debt, including actions that could have been begun before the petition was filed. The stay also prohibits the continuation of any action, such as debt collection phone calls, to collect on an obligation. The stay prohibits all creditors from acting to create, perfect or enforce any lien against any of the debtor’s property.

Exemptions from the stay

The provision of the Bankruptcy Code that creates the automatic stay also specifies certain claims that are exempt from the provision of the stay. These claims primarily affect individual petitioners, but some also apply to businesses. The most important exemptions are debts for the payment of taxes to the federal government or to a state or municipality.

Exempting a creditor from the stay

An individual creditor may seek an exemption from the stay by filing a motion with the court, setting forth the reasons why enforcement of the stay would be unfair to that creditor.

Expiration of the stay

Unless the court rules otherwise, an automatic stay expires when the court signs an order granting or denying petition or dismisses the petition.

Getting legal support

Using the automatic stay to the proper effect can help a business survive a temporary decline in operating revenue or an unexpected business interruption. The application of the automatic stay can involve complex legal questions involving other provisions of the bankruptcy code. A knowledgeable business attorney can help ensure that the automatic stay is given its maximum power to protect a bankruptcy petitioner from the claims of creditors.