Automatic stay is defined in two parts:
- The “automatic” is in reference to the injunction that would prohibit most creditor collection activities, after the 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 States Bankruptcy Code, a creditor can request to lift automatic stay if they think that their interest in collateral is not adequately protected. To succeed on the motion, the creditor has to either demonstrate that their interest in collateral is not adequately protected and the value of the collateral is going down or that the debtor has no equity in the property and the property is not necessary for reorganization.
§363(b) lists exceptions to the automatic stay. The most 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; and the right of a governmental unit to enforce its police and regulatory power.
See e.g., In re Enron Corp. 306 B.R. 465 (2004)
[Last updated in June of 2022 by the Wex Definitions Team]