LAWDOG BANKRUPTCY: CHAPTER 12

Relief From Stay

Automatic Stay

An automatic stay is a statutory "order" which protects the debtor and his 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 12 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.

Co-Debtor Stay

Section 1201 of the Bankruptcy Code provides that in a bankruptcy for individuals filed under Chapter 12, a creditor may NOT pursue against a co-debtor or a personal guarantor, not in bankruptcy, if the debt is a "consumer debt". Under Section 101 (8) ''consumer debt'' means debt incurred by an individual primarily for a personal, family, or household purposes. See Co-Debtor and Personal Guarantee from previous menu or click here. Link does not return to this page.

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. See Section 362(b) reproduced here for illustration purposes only. Actual cases should be discussed with your actual legal advisor or legal department.

Top Of Page

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. Purchase money security interests that secure new value given by the secured party to enable the debtor to acquire property, and in fact used by the debtor to acquire property described as collateral in the security agreement may meet these requirements. See a portion of Section 547 reproduced here for illustration purposes only. The filing of a continuation statement to maintain secured status of the creditor may be permitted by Section 362(b)(3). Always discuss actual cases with your actual legal advisor or legal department.

Top Of Page

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.

Section 361 regarding adequate protection does not apply in a case under Chapter 12. Section 1205 provides that adequate protection applies to protect the secured creditor from a decrease in the value of property securing a claim or of an entity's ownership interest in property. For more information about Section 1205 concerning adequate protection in a Chapter 12 case, see Secured Claim from the previous menu, or click here. Link does not return to this page. Actual cases should always be discussed with your actual legal advisor or legal department.

Top Of Page

Copyright 1996, 1997, 1998 by LAWDOG.COM Publishing, Inc.