LAWDOG BANKRUPTCY: CHAPTER 11

Relief From Stay

Proof Of Claim

A Proof Of Claim is a document, filed with the Bankruptcy Court, and sometimes used to establish or substantiate a claim of a creditor. See Section 501, reproduced here for illustration purposes only.

In a Chapter 11 proceeding, a "bar date" is scheduled by the Court, which is the deadline for filing a Proof Of Claim. This date may be included in the Notice Of Commencement of a bankruptcy case. If a creditor's claim is correctly listed in the debtor's schedules, and it is not listed as contingent, disputed or unliquidated, the Proof Of Claim is automatically deemed to be filed. See Section 502, reproduced here for illustration purposes only.

Any creditor in a Chapter 11 whose claim is not scheduled, or scheduled as disputed, contingent, or unliquidated, must file a proof of claim or interest within the prescribed time to participate in voting and distribution. Compliance within the deadline is generally strictly required. The Bankruptcy Code may allow a creditor to seek permission of the Court to file a tardy claim under only certain limited situations. It may be good policy to file a Proof Of Claim on all claims as soon as the creditor is informed of a bankruptcy. See Bankruptcy Rule 3003(c) reproduced here for illustration purposes only.

Secured Creditors

A creditor which is only partially secured, may elect under Chapter 11 to have such claim treated as secured claim to the full extent that such claim is allowed. This is sometimes referred to as a Section 1111 (b) Election. This election must be made prior to the conclusion of the hearing on the disclosure statement, or within such later time as the court may fix. See Secured Claim from previous menu or here. Link does not return to this page.

Proof Of Claim Forms

A Proof Of Claim form may be provided by the Bankruptcy Court, often printed on the back of the notice of commencement of a bankruptcy. The last date for filing a Proof Of Claim may be included on the notice. Completion of the form may require information such as the name of the debtor, case number, name and address of creditor, the basis for the claim, and many other items of information. The form may request that a copy of any judgment or other supporting documents be attached. A creditor should always consult legal counsel in an actual case to make certain that a Proof Of Claim is properly and timely filed.

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Automatic Stay

An automatic stay is a statutory "order" which protects the debtor and property, and prohibits actions by creditors after the filing of a bankruptcy. The "automatic stay" arises automatically, and does not require any specific order by a judge. Generally, most acts against the debtor, the bankruptcy estate, or the property of the debtor MUST CEASE upon the filing of the Chapter 11 bankruptcy. See Section 362 (a) reproduced here for illustration purposes only.

The automatic stay generally applies to everyone, and to every entity. The stay gives immediate relief to the debtor. The stay is an important concept which permits the orderly administration of a bankruptcy case. All proceedings against a debtor, with the few exceptions listed below, are prohibited. The enforcement of a judgment entered prior to the filing, against the debtor, or the property of the estate is prohibited. The enforcement, initiation or continuation of a lawsuit, acts to repossess collateral, and wage garnishments, may all be prohibited. The setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor, and most acts to enforce or perfect liens against the debtor's property are prohibited. A limited exception is discussed in Actions To Perfect Security Interests below.

For so long as the stay is in effect, creditors generally cannot even make a telephone demand for payment to a debtor. The automatic stay should be respected and taken seriously. Section 362 (h) provides that an individual injured by any willful violation of a stay shall recover actual damages, including costs and attorneys' fees, and, in appropriate circumstances, may recover punitive damages. Actual cases should be discussed with your actual legal advisor or legal department.

Exceptions

The exceptions to an automatic stay are generally not very relevant to creditors. The exceptions include things such as criminal proceedings, child or spousal support exceptions, and tax audit exceptions. Actual cases should be discussed with your actual legal advisor or legal department.

Perfection of Security Interests

The perfection of an interest in property may not be prohibited by an automatic stay if it occurs during the 10-day grace period provided by Section 547(e)(2)(A), or under other limited situations. The period may be extended for purchase money security interest transactions that are perfected on or before 20 days after the debtor receives possession of such property. Always discuss actual cases with your actual legal advisor or legal department.

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Relief From Stay

The stay of an act against property of the estate continues until such property is no longer property of the estate; and the stay of any other act under this section continues until the earliest of the time the case is closed, or dismissed; or if the case is a case under chapter 7 of this title concerning an individual, or a case under chapter 9, 11, 12, or 13 of this title, the time a discharge is granted or denied.

Upon the filing of a request by an interested party, the Court may also grant relief from automatic stay under limited circumstances. That is, the Court may terminate or modify the stay so that a creditor may, for example, foreclose upon or repossess certain secured property held by the debtor. See Section 362 (d) linked here for illustration purposes only.

Generally, if the property in which the creditor holds a security interest is held by the debtor or the Trustee, and the stay remains in effect, the debtor must provide "adequate protection" of the creditor's interest in the property. To obtain relief from automatic stay, a creditor must file a written motion, and must demonstrate at the hearing on the motion that the property in which the creditor has an interest is not adequately protected, or that the debtor has no equity interest in the property.

In any hearing under this section concerning relief from stay, the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and the party opposing such relief has the burden of proof on all other issues. Actual cases should always be discussed with your actual legal advisor or legal department. See Section 362 (g) linked here for illustration purposes only.

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