Guide-for-Nonprofit-Organizations-Bankruptcy-Issues-FINAL-with-ads

The Automatic StayFundamentally, bankruptcy law is designed to collect all of a debtor’s valuable assets, monetizethose assets or restructure the debt associated with the assets, and then distribute proceeds tocreditors or provide a mechanism for satisfaction of creditors’ claims. In many ways,bankruptcy law is a complex procedural apparatus for the orderly payment of a debtor’s debts.The alternative to a uniform bankruptcy law is a ―race to the courthouse.‖ That is, creditorswould race to obtain judgments against the debtor and pick off, piece by piece, the debtor’sassets to satisfy their claims. Of course, this alternative rewards speed and able navigation ofstate-law collection remedies—and it does not allow for an equitable, fair distribution of thedebtor’s assets to all creditors. In order to protect a debtor’s assets from attack by its creditors,the Bankruptcy Code contains a powerful injunction against collection actions against a debtorin bankruptcy: the ―automatic stay.‖As its name implies, the automatic stay is self-effectuating and arises as soon as a debtor files apetition. Additionally, the automatic stay is effective against the entire world without thenecessity of serving notice of the stay. Indeed, the existence of the automatic stay—andprotections it provides—often delivers the reason for filing a bankruptcy petition. For example,a debtor facing an imminent foreclosure files a bankruptcy petition to avoid eviction; a debtorwhose bank accounts are about to be swept files a petition to hold onto its remaining cash; or adebtor embroiled in taxing litigation files a petition to prevent imposition of a costly judgment.Although broad and seemingly all-powerful, the Bankruptcy Code does place limitations uponthe automatic stay.Specifically, the Code first lists eight exclusive actions that are stayed:1. The commencement or continuation, including the issuance or employment of process,of a judicial, administrative, or other action or proceeding against the debtor that was orcould have been commenced before the bankruptcy petition;2. The enforcement, against the debtor or against property of the estate, of a judgmentobtained before the bankruptcy petition;3. Any act to obtain possession of property of the estate or of property from the estate or toexercise control over property of the estate;4. Any act to create, perfect, or enforce any lien against property of the estate;5. Any act to create, perfect, or enforce against property of the debtor any lien to the extentthat such lien secures a claim that arose before the bankruptcy petition;6. Any act to collect, assess, or recover a claim against the debtor that arose before thebankruptcy petition;7. The setoff of any debt owing to the debtor that arose before the commencement of thecase under this title against any claim against the debtor; and8. The commencement or continuation of a proceeding before the United States Tax Courtconcerning a tax liability of a debtor that is a corporation for a taxable period thebankruptcy court may determine or concerning the tax liability of a debtor who is anindividual for a taxable period ending before the bankruptcy petition.20