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How can a Chapter 11 automatic stay help businesses?

Sometimes, through no fault of its own, a business can find itself deeply in debt that it cannot pay back. There may be an increase in competition, a struggling economy or the loss of customer base. When this happens, business owners in Louisville may decide that it is in their best interests to file for Chapter 11 business bankruptcy.

This may be especially true if a business is facing foreclosure or collections activities. Such activities pose a true threat to a business, and business owners may wonder if anything can be done to halt such activities.

Fortunately, once a business files for Chapter 11 bankruptcy, an automatic stay is issued. Through an automatic stay, any repossession efforts, foreclosure activities, collection actions and judgments are suspended. This stay goes into effect the minute the bankruptcy petition is filed. It serves as a safe period in which the business can attempt to negotiate a solution with its creditors.

Nonetheless, there are situations where a secured creditor can move the court to lift the automatic stay. For example, if a business has no equity in the property and the property is not necessary to the reorganization plan, then an automatic stay may be lifted for that secured creditor. When that happens, the creditor is allowed to continue foreclosure activities, the proceeds of which will go towards paying back the debt.

An automatic stay can be extremely helpful for businesses who just need more time to try to come up with a solution with their creditors regarding their financial situation or who need to stop a bad situation from becoming worse. But, as discussed, there are certain situations where an automatic stay can be lifted. A bankruptcy attorney can provide more information about a Chapter 11 automatic stay.

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