An Overview of the Automatic Stay in Chapter 11 Bankruptcy

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Chapter 11 bankruptcy provides debtors with a strong set of tools with which they can work towards an orderly reorganization or, in some cases a liquidation of their business. Chapter 11 bankruptcy is also available to individuals, especially where an individual has too much debt to reorganize in a Chapter 13 bankruptcy. A Chapter 11 case can be commenced on a voluntary basis by the debtor or on an involuntary basis by the debtor's creditors. The filing of a Chapter 11 bankruptcy petition creates a bankruptcy "estate", and triggers the "automatic stay" which is one of the greatest advantages of filing a bankruptcy. With certain exceptions, the automatic stay operates as an automatic and broad injunction against all actions affecting or that could affect the debtor's estate.

In this video, Joseph M. Shapiro, Esq. and Melinda D. Middlebrooks, Esq. of Middlebrooks Shapiro, P.C. (Springfield, NJ) discuss the automatic stay, which is codified in Section 362 of the Bankruptcy Code. 11 U.S.C. ยง 362(a). In Chapter 11 bankruptcy, as well as other bankruptcy chapters, the automatic stay is crucial to an orderly reorganization and/or liquidation. The automatic stay is just that, automatic, upon the filing of the bankruptcy petition. The automatic stay operates as an injunction against creditors regardless of whether a creditor has actual notice of the filing of the bankruptcy petition. In some instances, a creditor may be found by the Bankruptcy Court to have willfully violated the automatic stay, which may subject that creditor to sanctions. As a result, the automatic stay is a powerful tool that can be used to stop state court or federal court actions in their tracks, such as a sheriff's sale, an auction, or a levy of the debtor's property.

Additional Resources

Chapter 11 Reorganization under the Bankruptcy Code

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