Imagine that the moment you file a bankruptcy petition a large wall comes crashing down surrounding you and all of your assets. Next, imagine that all your creditors are stuck outside of this wall. Well, that is exactly what happens when you file a bankruptcy case, with a few exceptions. That wall is called the automatic stay. The automatic stay has several purposes.
From the bankruptcy court and trustee’s point of view, the automatic stay gives them the time to evaluate the assets and debts of the bankrupt estate so as to administer that estate according to applicable law.
For the debtor, the individual or company that files for bankruptcy, the automatic stay provides a breathing spell. The automatic stay stops the harassing phone calls from creditors and buys the debtor some time to try to reorganize its debts or liquidate assets to pay off certain debts and, possibly, avoid other financial obligations entirely.
From the creditor’s perspective, the automatic stay is a pesky friend. On the one hand, the automatic stay ensures that you are not treated unfairly compared to other similarly situated creditors. Indeed, the automatic stay diminishes the proverbial “race to the courthouse.” Remember, all of the debtor’s assets are safely protected behind that wall, which brings up the other hand. You too are stuck outside that wall and out of reach from the debtor’s assets. That being said,certain creditors are in a position to ask the bankruptcy court for permission to cross the wall and collect a specific asset(s). A creditor must be very cautious when seeking to collect on a debt because the bankruptcy court is empowered to impose sanctions for violation of the automatic stay.
For more advice about the automatic stay and the bankruptcy process generally, contact our offices for a FREE consultation.