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A CREDITOR’S PERSPECTIVE ON AVOIDING THE BANKRUPTCY CODE’S AUTOMATIC STAY

A CREDITOR’S PERSPECTIVE ON AVOIDING THE BANKRUPTCY CODE’S AUTOMATIC STAY

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Published by JimersonCobb
The first consideration for creditors during bankruptcy proceedings is the Automatic Stay provision of the Bankruptcy Code. Section 362 of the United States Bankruptcy Code provides the provisions governing the Automatic Stay. The Automatic Stay works as an immediate “injunction” that halts all actions by creditors and potential creditors to collect on pre-bankruptcy debts from a debtor who has declared bankruptcy.
The Automatic Stay applies in all bankruptcy proceedings, including Chapters 7, 11 and 13, and this provision is invoked automatically and immediately upon the debtor filing for bankruptcy. The Automatic Stay is a benefit to debtors because once invoked it works to immediately stop all actions and proceedings to recover claims against the debtor. Conversely, it is a detriment to creditors as they can no longer continue with either collection efforts or legal action for their claims against the debtor.
However, there are exceptions to the Automatic Stay which provide relief to creditors. For creditors seeking to avoid the Automatic Stay, there are three subsections of Section 362, which can be invaluable if taken advantage of properly. These include §§§ 362(b), (d) & (f), which can be considered the creditor’s best allies within the Bankruptcy Code.
The first consideration for creditors during bankruptcy proceedings is the Automatic Stay provision of the Bankruptcy Code. Section 362 of the United States Bankruptcy Code provides the provisions governing the Automatic Stay. The Automatic Stay works as an immediate “injunction” that halts all actions by creditors and potential creditors to collect on pre-bankruptcy debts from a debtor who has declared bankruptcy.
The Automatic Stay applies in all bankruptcy proceedings, including Chapters 7, 11 and 13, and this provision is invoked automatically and immediately upon the debtor filing for bankruptcy. The Automatic Stay is a benefit to debtors because once invoked it works to immediately stop all actions and proceedings to recover claims against the debtor. Conversely, it is a detriment to creditors as they can no longer continue with either collection efforts or legal action for their claims against the debtor.
However, there are exceptions to the Automatic Stay which provide relief to creditors. For creditors seeking to avoid the Automatic Stay, there are three subsections of Section 362, which can be invaluable if taken advantage of properly. These include §§§ 362(b), (d) & (f), which can be considered the creditor’s best allies within the Bankruptcy Code.

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Published by: JimersonCobb on Dec 12, 2012
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1
A CREDITOR’S PERSPEC
TIVE ON AVOIDING THE
BANKRUPTCY CODE’S
AUTOMATIC STAY
By Hans Wahl, EsquireThe first consideration for creditors during bankruptcy proceedings is the Automatic Stayprovision of the Bankruptcy Code. Section 362 of the United States Bankruptcy Code providesthe provisions governing the Automatic Stay. The Automatic Stay works as an immediate
injunction
that halts all actions by creditors and potential creditors to collect on pre-bankruptcydebts from a debtor who has declared bankruptcy.The Automatic Stay applies in all bankruptcy proceedings, including Chapters 7, 11 and13, and this provision is invoked automatically and immediately upon the debtor filing forbankruptcy. The Automatic Stay is a benefit to debtors because once invoked it works toimmediately stop all actions and proceedings to recover claims against the debtor. Conversely, itis a detriment to creditors as they can no longer continue with either collection efforts or legalaction for their claims against the debtor.However, there are exceptions to the Automatic Stay which provide relief to creditors.For creditors seeking to avoid the Automatic Stay, there are three subsections of Section 362,which can be invaluable if taken advantage of properly. These include §§§ 362(b), (d) & (f),which can be considered
the creditor’s best allies within the Bankruptcy Code.
 First, Section 362(b) provides for built-in, statutory exceptions to the Automatic Stay forspecific circumstances. The following are examples of a few such circumstances in which theAutomatic Stay is of no effect:1)
 
criminal actions/proceedings against the debtor (§ 362(b)(1))2)
 
obligations pursuant to ownership in financial securities, such as stocks, bonds andoptions (§ 362 (b)(6))3)
 
a lessor’s actions to rega
in control over commercial property due to a lease expiration(§ 362(b)(10))4)
 
an eviction action for residential property if the lessor received a judgment for
 possession of such property before debtor’s filing of bankruptcy and
the evictionaction is in regards to the endangerment of such property or the illegal use of controlled substances on such property (§§ 362(b)(21) & (22))The next section of the Bankruptcy Code that is friendly to the creditor is § 362(d), whichallows for a cr
editor to petition the court for a “lifting of the Stay” or “relief from the Stay” in
order to continue collecting a debt under certain circumstances. The following are examples of afew situations in which a creditor may seek relief from the Stay:
 
21)
 
the creditor has a lack of adequate protection in the property in which the creditor hasa secured interest (§ 362(d)(1))2)
 
the debtor has no equity in the property that a secured creditor has an interest in, andsuch property is not necessary for reorganization under Chapter 11 (§ 362(d)(2))3)
 
the creditor’s claim involves debtor’s real estate that the secured creditor has an
interest in, unless, the real estate is a part of Chapter 11 reorganization or the debtorhas voluntarily continued making payments (§ 362(d)(3))4)
 
the creditor’s claim involves property in which
the creditor has a secured interest, if 
the court finds debtor’s filing of bankruptcy was part of a scheme to delay, hin
der ordefraud creditors, which involved the transfer of ownership in that property(§ 362(d)(4))If a creditor has a claim where § 362(d) may allow for relief from the Automatic Stay, thecreditor must follow certain legal procedures. The creditor must first file a motion with thecourt. The debtor is then entitled to a no
tice and a hearing regarding the creditor’s claims and
reasons for petitioning the court for relief. The creditor then has the burden to convince the courtthat it has a sufficient reason for obtaining relief from the Automatic Stay.The third section of the Bankruptcy Code that is friendly to the creditor is § 362(f), whichcan be viewed as a catch-all for situations that arise that were unforeseeable to Congress whenratifying the Bankruptcy Code. Section 362(f) states the following:Upon request of a party in interest, the court, with or without a hearing, shall grantsuch relief from the stay . . . as is necessary to prevent irreparable damage to theinterest of an entity in property, if such interest will suffer such damage beforethere is an opportunity for notice and a hearing under subsection (d) or (e) of thissection.In other words, when all else fails, a creditor should, at the very least, attempt anargument under § 362(f) that irreparable damage will occur to the property in question in order to
 protect its interest in the debtor’s property.
 In the case of In re Pink Moon Enterprises, LLC., a landlord, after making a § 362(f)argument, was granted immediate relief from the Automatic Stay to continue his action torepossess property from the debtors. 444 B.R. 490 (Bankr. S.D.Fla. 490). The court providedthe landlord relief from the Stay because it found the leased premises posed a threat to publicsafety due to it having no power, inoperative emergency lighting, and no air conditioning, whichcreated the threat of mold on the property. Id.In another case, In the Matter of Yasparro,
the value of a debtor’s boat, based on an
ordinary sale in an average market, was determined to be $140,000. 76 B.R. 207 (Bankr. M.D.Fla. 1987). However, there were extremely soft market conditions at the time and it wasdoubtful the boat could be sold for that amount. Id. Moreover, the debtor had no income at the

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