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The automatic stay in a Chapter 11 bankruptcy filing

Despite the fact that, by many measures, the national economy is recovering nicely from the worst days of 2007 and 2008, on the local level in Escondido there are still many businesses that are struggling. During tough times many companies will scale back operations or draw upon cash reserves. But, for other companies, they are not in such a fortunate position when the finances take a turn for the worse. For these companies, filing for Chapter 11 bankruptcy may become a real possibility.

Of course, anyone who is familiar with previous posts here knows that a Chapter 11 bankruptcy filing isn't always a bad thing. Sure, there will probably be some negative media coverage in the short term, and customers and contract partners may have concerns that weren't there before, but in the long run a Chapter 11 bankruptcy could prove to be the saving grace for a struggling company. And one of the most important parts of a Chapter 11 bankruptcy is the automatic stay.

The automatic stay goes into effect immediately upon the filing of the bankruptcy petition. From that point on, creditors are not allowed to pursue any type of collection action against the company - the debtor. There are certain exceptions for creditors who hold secured debt, but for the most part the automatic stay will allow the company to begin to negotiate with creditors without having to deal with collection efforts.

The automatic stay is just one positive aspect of filing for Chapter 11 bankruptcy. Business owners who find themselves with few options due to financial problems may find that there are several other positive aspects to a business bankruptcy filing.

Source: www.uscourts.gov, "Chapter 11 - Bankruptcy Basics," Accessed July 11, 2015

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