Can legal action & lawsuits be filed against a company while in Chapter 11?

Asked over 1 year ago - Gilbert, AZ

If a company files for chapter 11 Bankruptcy, is it protected from legal action from non-creditors during this time?

Attorney answers (6)

  1. Jerome S Cohen

    Contributor Level 6

    5

    Lawyers agree

    Answered . Most probably. A lawyer doesn't like to say "certainly". Section 362 of the Bankruptcy Code provides a bankruptcy debtor the famous basic protection the debtor seeks, the "automatic stay" or freeze on legal action. The stay is "applicable to all entities". Entity and person are words that the Code defines very broadly. The Code lists a wide variety of legal actions that are subject to the stay. So -- because the moving party and the type of action are both broad categories-- the answer to your question is most probably. Consult an experienced Ch 11 lawyer near you.

    The above is meant to be valuable and not harmful. A lawyer intending to help a client or prospective client... more
  2. Thomas R. Morris

    Contributor Level 12

    4

    Lawyers agree

    1

    Answered . Yes, with certain exceptions, the automatic stay provisions (section 362 of the Bankruptcy Code) protect the company from creditor action.

    You asked about legal action from "non-creditors". I don't know what you mean by "non-creditor", so I don't have enough information to answer the question more precisely.

    This answer is for discussion purposes only and will not be considered legal advice. Further, a court could... more
  3. Scott Benjamin Riddle

    Pro

    Contributor Level 20

    4

    Lawyers agree

    Answered . It depends on the claims, who is asserting them, and where they might be filed. You didn't provide any details so we can't tell you much more. See a lawyer who has experience in Chapter 11.

  4. Michael Avanesian

    Pro

    Contributor Level 16

    4

    Lawyers agree

    Answered . First of all, I am very worried that you are asking a question like that because step #1 is to consult with an attorney that you trust regarding this matter.

    Chapter 11 is extremely complicated and seasoned attorneys make a lot of mistakes because they think it's an easy transition from 7s and 13s to 11s.

    So I recommend you find a good Chapter 11 attorney to help you in this process.

    The automatic stay only protects you from pre-bankruptcy claims or actions against you. Post filing actions are not affected by it.

    The above is general legal and business analysis. It is not "legal advise" but analysis, and different lawyers may... more
  5. Mark Markus

    Contributor Level 16

    2

    Lawyers agree

    Answered . As the others point out, there isn't enough information to answer your question. When you say a "non-creditor" do you mean not a creditor PRIOR to the bankruptcy case being filed? If so, most likely you are free to commence a legal action against the Chapter 11 debtor (and debtor-in-possession) outside of bankruptcy court.

    Mark Markus has been practicing exclusively bankruptcy law in California since 1991. He is a Certified Specialist in Bankruptcy Law by the State Bar of California Board of Legal Specialization, AV-Rated by martindale.com, and A+ rated by the Better Business Bureau. His webpage is www.bklaw.com

    Legal disclaimer: Mark J. Markus practices law in California only. The information is not, nor is it intended to... more
  6. Richard Edmund Hawkins

    Pro

    Contributor Level 16

    1

    Lawyer agrees

    1

    Answered . The first question is why a non-creditor would even be filing an action--the basis for any action is some kind of relief, which generally means the person filing is claiming to be a creditor.

    If the action is for something *before* the Chapter 11 was filed, then it needs to either be brought as a proof of claim, an adversary proceeding, or a motion for relief from stay.

    If for something *after* the petition was filed, it may be possible to bring it, but no judgment could be executed until after

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