The Chapter 13 Bankruptcy and the Automatic Stay

Published 01/18/18 by Admin

automatic stay

Bankruptcy is a legal process under the jurisdiction of the federal government. It is the option individuals and companies have when they are overextended on credit and don’t have the income or assets to pay their creditors.

There are two broad categories of bankruptcy. One is a liquidation under Chapter 7, where a petitioner relinquishes their assets to be distributed to creditors. The other is a reorganization under either Chapter 11 or Chapter 13, where a petitioner avails itself of the orderly processes of the court to negotiate new agreements with its creditors.

In either case, there is one very important power a petitioner has, and that is to enjoin all its creditors with an automatic stay on any legal action against it.

The Benefit of Time

Under the law, creditors have the power and the legal authority to foreclose on a debtor’s assets to satisfy their legal obligations. What an automatic stay affords a debtor is the opportunity to stop what can be a very destructive and overwhelming burden by utilizing the authority of the federal judiciary and stop all litigation, seizures, court orders and any other legal activity until such time as the debtor’s case can be heard.

In Ohio, for example, some individuals or companies that file for bankruptcy might think they need the best bankruptcy attorney in Columbus, but the truth is any debtor filing for bankruptcy has the perpetual option to place a stay on all litigation against it until such time as their bankruptcy petition can be heard.

The Power to Negotiate

Creditors by and large just want to be paid. While a bankruptcy proceeding is likely to be inconvenient for them, the automatic stay means they might not get paid at all. This gives a debtor leverage in a situation where they might otherwise have no power at all.

When a firm like Barr, Jones & Associates LLP files a Chapter 13 bankruptcy, they may use the automatic stay as a bargaining chip to work out a better deal for their client. This is one reason why reorganization is such a powerful tool for companies that might be perfectly viable, but need breathing room away from a restrictive debt structure.

The automatic stay on litigation is something all debtors should keep in mind if they are considering bankruptcy. It is a powerful tool and can be used by competent counsel to help you achieve a better outcome for all involved.