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Commercial bankruptcy and the automatic stay

On Behalf of | Mar 26, 2021 | Business & Commercial Bankruptcy

One of the most comforting aspects of filing for bankruptcy is the reassurance that debtors can get some relief from incessant requests for payment from debt collectors. This newfound freedom can give them the space and flexibility to decide what they want for the future of their company.

People’s understanding of some common aspects of commercial bankruptcy can help them protect their rights during the process.

The Automatic Stay

Enforcement of the automatic stay begins as soon as people file for bankruptcy protection. This means that creditors can no longer request that debtors pay outstanding debts. According to Property Metrics, this includes eviction proceedings. A landlord seeking to evict a tenant can no longer request the tenant leave. Rather, they should notify the courts charged with handling the eviction of the impending bankruptcy.

Requests for payments to satisfy outstanding debts can originate from government entities, private creditors and collections agencies. The automatic stay applies to each of these sectors.

The right to protection

Even with an automatic stay in place, some creditors continue to harass debtors or even try to repossess property or other assets. Because the automatic stay is a debtor protection afforded by bankruptcy laws, creditors found in violation may face serious legal repercussions.

Debtors can legally sue creditors who violate the automatic stay. According to FindLaw, debtors can sometimes recover compensatory damages in cases where courts find evidence of willful violation by a creditor. At the onset of bankruptcy filings, business owners would benefit from documenting any continued correspondence between them and their creditors. This information can provide critical support in circumstances where they claim a violation of their right to the automatic stay.

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