If your business is facing bankruptcy as your only remaining option, then you may be wondering if it will even help. If it’s hard for you to even open the doors tomorrow, what good will a lengthy bankruptcy trial do to your ability to continue operating? Will a business bankruptcy provide immediate financial relief? Yes, it can through what’s called an automatic stay. Learn about your options, what an automatic stay is, how it works, and when it goes into effect right here.
What is an automatic stay and when does it go into effect?
An automatic stay is what provides immediate assistance during bankruptcy litigation. Once a bankruptcy case has commenced, an automatic stay goes into effect right away to provide your business some protection as your bankruptcy trial begins.
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Once your automatic stay is in effect, any pending lawsuits, foreclosures, and other financial actions against you as a debtor are put on hold. This means creditors are not allowed to take any action to collect or even send demand letters.
Keep in mind though that there are some limited exceptions. For example, an automatic stay does not apply to guarantors or other parties to the litigation. Additionally, creditors can ask the bankruptcy court permission to proceed which may be granted depending on the circumstances.
What should you do before filing for business bankruptcy?
What is the purpose of an automatic stay during a business bankruptcy?
An automatic stay is designed to ensure that your business is given the best chance to keep operating until the appropriate restructuring plan is put in place. It does not guarantee that your business can keep operating during bankruptcy proceedings, but it does increase your odds significantly.
What happens if a creditor violates an automatic stay?
If your business is protected by an automatic stay and creditors are still taking actions to collect despite not having the permission or the status to do so, then they are in direct violation of the automatic stay. Let your lawyers know if this happens as the creditor may be subject to court-ordered sanctions.
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