Automatic Stay

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Automatic is an automatic injunction that prohibits most creditor collection activities, after debtor has filed for bankruptcy.

The stay begins at the moment the bankruptcy petition is filed, however, secured creditors may petition for relief from the automatic stay under §4001 of the Federal Rules of Bankruptcy Procedure. Under §363(d) of the United State Bankruptcy Code, creditor can request to lift automatic stay if he thinks that his interest in collateral is not adequately protected. To succeed on the motion, creditor has to either demonstrate that his interest in collateral is not adequately protected and the value of the collateral is going down or that debtor has no equity in the property and property is not necessary for reorganization.

§363(b) lists exceptions to the automatic stay. The most commonly sought exceptions are actions by parties to securities contracts to close out open positions; eviction of a debtor by a landlord where the lease has been fully terminated prior to the bankruptcy filing; actions by taxing authorities to conduct tax audits, issue deficiency notices, demand tax returns and make tax assessments; the right of a governmental unit to enforce its police and regulatory power.

[Last updated in May of 2020 by the Wex Definitions Team]