automatic stay

In a 23 page opinion released July 21, 2015 in the Trump Entertainment Resorts case (Bank. D. Del. 14-12103), Judge Kevin Gross of the Delaware Bankruptcy Court opined upon the interaction of the Bankruptcy Code’s automatic stay and the Norris-LaGuardia Act (“NLA”).  Judge Gross’ opinion is available here (the “Opinion”).

With certain exceptions, the filing of a bankruptcy petition immediately and automatically puts into place a court order of a stay of collection action applicable to all entities against actions by creditors against the person who filed for bankruptcy relief as well as his property. The bankruptcy stay remain in effect until it is terminated by the bankruptcy court or as otherwise provided by the Bankruptcy Code.

Chapter 13 Co-Debtor Stay
In a chapter 13 case, the automatic stay is also effective against a person who is a co-signer on consumer debt.

The automatic stay is one of the most powerful protections provided to debtors in a bankruptcy proceeding.  The stay acts as an injunction that prohibits creditors (including landlords) from commencing or continuing any proceeding against the debtor which could have been commenced prior to the bankruptcy.  Applied to landlords, the automatic stay prohibits efforts to collect unpaid rent, or seek eviction, setoff, lease termination or foreclosure, among others.

An attorney called me to ask whether he continue a residential eviction after the tenant filed Chapter 13 bankruptcy. The landlord’s attorney had already obtained a writ of eviction for non-payment of rent. 

Cash Is King. An army may march on its stomach, but for companies, it’s liquidity that keeps the business going. For many companies, typical sources of liquidity, beyond cash flow from sales or other revenue, are (1) financing from banks or other secured lenders, (2) credit from vendors that can reduce immediate liquidity needs, and (3) when needed, loans from owners, investors, or other insiders.