How does a Chapter 11 Bankruptcy filing protect the debtor?
Simply put filing for Chapter 11 Bankruptcy stops all collection actions against the debtor while allowing the debtor time to make a plan to reorganize. When a business files for Chapter 11 Bankruptcy it is protected by the automatic stay which takes place immediately upon the filing of the petition. As with all cases under other chapters of the Bankruptcy Code, a stay of creditor actions against the chapter 11 debtor automatically goes into effect when the bankruptcy petition is filed. 11 U.S.C. § 362(a). The filing of a petition, however, does not operate as a stay for certain types of actions listed under 11 U.S.C. § 362(b). The stay provides a breathing spell for the debtor, during which negotiations can take place to try to resolve the difficulties in the debtor’s financial situation. No creditor can take any action against the debtor without the court granting relief from the automatic stay.
