Document Type

Article

Publication Date

1990

Abstract

The automatic stay is considered to be one of the most important provisions of the Bankruptcy Code for Chapter 11 debtors. It is the shield behind which the debtor may go about the process of reorganization using the mechanisms provided by the other sections of the Code. The stay permits a debtor the time to formulate a repayment or reorganization plan.

Resisting a challenge to the stay is, therefore, often crucial to the reorganizing debtor. By preventing the initiation or pursuit of legal action against a debtor, the stay allows the debtor to devote its limited time and resources to the reorganization process. By preventing creditor seizure of essential property, the stay prolongs the debtor's survival. By the same token where the debtor has no hope of reorganizing in a way to benefit creditors, the stay is a needless interference with the ability of creditors to protect their rights. Where that is the case the stay contributes to what many claim to be a serious problem in the bankruptcy system: The use of Chapter 11 by debtors to fritter away estate assets in a hopeless attempt to revive the business.

For this reason it is not surprising that litigation involving the automatic stay consumes such a large part of the bankruptcy process. This litigation usually takes the form of motions for relief from the stay. The vast majority of cases involving the automatic stay involve efforts by creditors with either contractual or judicial liens to obtain possession of property in the hands of the debtor.

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