When businesses or individuals file a Chapter 11 bankruptcy, the court issues an automatic stay, which immediately puts an end to collection efforts. It is called an automatic stay because it arises automatically upon a bankruptcy petition, and it stays lenders and creditors from pursuing collection. While the automatic stay is generally thought of as a protection for individuals and businesses who file bankruptcy, it also protects certain creditors, such as those which will get paid more if the debtor stays in business or keeps employment than if the debtor loses key assets and income. By preventing collection efforts, the automatic stay gives those who file bankruptcy time to regain their financial footing and formulate a plan to make payments to creditors.
As in other Chapters, the automatic stay in a Chapter 11 case is quite broad. For example, it prevents creditors from bringing legal action against debtors, and generally halts existing litigation between them as well. Moreover, an automatic stay stops foreclosures, judgment execution, and repossessions for any debt that arose before the bankruptcy case is filed. An automatic stay is effective against every creditor unless an exception to the stay applies or unless the court grants relief from the stay. Creditors that violate an automatic stay can be held liable, and an Arizona bankruptcy attorney can help those who file Chapter 11 bankruptcy hold creditors accountable for their actions. To learn more about the automatic stay and bankruptcy, individuals and businesses should speak directly with an Arizona bankruptcy lawyer.