Automatic Stay

Like magic dust: Freezes all creditor action against debtors

Secured or unsecured, creditors cannot foreclose or repossess collateral (PMSI exceptions, can still perfect)

Creditors cannot perfect security interests

All lawsuits that have been filed against the debtor in state or Federal Bankruptcy Court centralized into bankruptcy court

In a Chapter 11, secured creditor may request “A Relief of Bankruptcy Stay” if he/she can prove that the stay does not offer “adequate protection” and “jeopardizes his interest” in the collateral

Secured creditor will only win if collateral is equal to or less than the debt. If there is “overage” in the collateral, judge will want to keep it in the pool of assets so as to protect other unsecured creditors. Discuss Tension with Article 9

2005 Revision: Debtor in Chapter 7 is required to reaffirm or redeem a loan secured by personal property within 45 days of filing, or surrender (give it back) the property

Reaffirmation agreement (Slide in Ch11)

Specific requirement. Promise to pay the debt back.

Redeem - promise to pay back

One who takes action despite the automatic stay will be held in contempt of court and any action taken would be reversed

Exempt from Automatic Stays:

 * 1) Alimony
 * 2) Child support
 * 3) Where there are comakers and guarantors, it does not affect ability to proceed against them