The Automatic Stay

Upon the commencement of a Chapter 11 case, the Bankruptcy Code creates an "automatic stay" which prevents creditors from taking any action against the debtor during the pendency of the case. The automatic stay provides a period of time in which all judgments, collection activities, foreclosures, and repossessions of property are suspended and may not be pursued by the creditors on any debt or claim that arose before the filing of the bankruptcy petition. All creditors are essentially frozen in their prepetition position. The automatic stay is designed to provide the debtor with time to investigate and formulate a plan of reorganization, negotiate the plan with creditors and solicit votes, and complete the restructuring.