In this six-part article, we first addressed when an entity on a construction project files a bankruptcy petition. In the second section, we discussed the most common ways a person can file for bankruptcy. In the third section, we educated creditors on how to file a claim for payment. In this section, section five, and section six, we will discuss the fallout of a bankrupt project and the legal process a creditor should take to seek repayment. If you are involved in a project that has a bankrupt entity, please contact a Jacksonville construction attorney.
The Automatic Stay
When a bankruptcy petition is filed, an automatic stay immediately goes into effect. The automatic stay ceases many of the immediate interests of the creditor including any collection efforts. The automatic stay also prevents the termination of any contracts that were in place before the petition. This process is designed to provide the debtor with some security and relief while they focus their efforts on the bankruptcy process of their estate.
Speak With An Experienced Attorney
If another party on a construction project files a bankruptcy petition, it’s important to seek the consultation of one of our Jacksonville construction attorneys. If a creditor violates any terms protected under the debtor’s automatic stay, they may receive significant citations for their violations. The following actions are prohibited by a creditor during an automatic stay:
- Moving forward with any legal process established before the filing of the petition
- Enforcing a judgment that was made before the petition
- Placing a lien on the property (in most cases)
- Collecting or recovering a claim from the debtor
- Terminating a contract that was active before the petition was filed
- Seeking Relief From the Automatic Stay
Instead of taking an action that may result in a penalty, a creditor can seek relief from the automatic stay by filing a petition to the bankruptcy court. Depending on the circumstances of the case, the bankruptcy court can remove this restrictive automatic stay from the creditor. This generally happens when the debtor owed the creditor more than the value of the property.
Taking Action Against the Debtor
It’s important for creditors to remember that just because an automatic stay prevents actions against the debtor in relation to that bankrupt property it does not prevent the creditor from seeking collection efforts on other properties or assets owned by the debtor. As we will discuss in more detail in the upcoming sections, the creditor can take certain actions against a creditor to ensure they receive payment from the debtor or to void their contract with the debtor as long as those actions do not affect the property involved in the bankruptcy case.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.