On April 30, 2009, Chrysler and its affiliates filed a chapter 11 case in the U.S. Bankruptcy Court for the Southern District of New York. On June 1, 2009, GM and its affiliates also filed a chapter 11 case in the U.S. Bankruptcy Court for the Southern District of New York.
People and companies who are owed money from these companies have questions about what are their rights now that these companies have filed for bankruptcy. In a prior posting ( Help I am Owed Money By a Company that Has Recently Filed for Bankruptcy in New York) we have discussed the different types of claims in bankruptcy cases. In this post we will focus more specifically on the rights of creditors of Chrysler and GM.
1. Automatic Stay Prevents Collection, Litigation & Judgment Enforcement
Upon the commencement of a bankruptcy case the automatic stay goes into effect. The automatic stay is a mandatory injunction of the Bankruptcy Court that arises automatically by operation of law upon the filing of a bankruptcy case. The territorial reach of the stay is nationwide (and in theory at least — worldwide — although creditors in foreign jurisdictions will not always honor U.S. Bankruptcy Court orders). The stay is automatic because no prior notice or hearing is required before the stay goes into effect.
The stay prevents dunning and collection activity by suppliers and vendors to collect unpaid pre-bankruptcy invoices. The automatic stay prevents filing of lawsuits against the debtor relating to bankruptcy claims. If a creditor has a judgment against the debtor the automatic stay prevents efforts by the creditor to perfect (such as by filing judgment liens) or enforce a judgment (such as by execution through a sheriff).