Page 27 - Bankruptcy Volume 1

Overview of Significant Events, Requirements and Milestones in a Bankruptcy Proceed-
ing

Petition

The bankruptcy is started with the filing of a petition. There are separate petitions for individuals and
nonindividuals. The following discussion will refer to the filing for relief by nonindividuals. The petition
information is outlined on official Form 201, which can be obtained from any federal bankruptcy court
website. Of import, the filing of a petition creates the debtor’s estate and the demarcation between
prepetition and postpetition obligations. Additionally, the automatic stay arises by virtue of the filing. If
filed by a debtor, the petition is referred to as a voluntary petition. If filed by creditors of the debtor it is
referred to as an involuntary bankruptcy. Bankruptcy Code Section 303(a) outlines the requirements of a
creditor seeking to push a debtor into bankruptcy on an involuntary basis and the risks of incorrectly do-
ing so. With certain exceptions, any entity that could file under the Bankruptcy Code can be forced into
bankruptcy on an involuntary basis, although such involuntary filings are not common.

Automatic Stay

Immediately upon the filing of a petition, an automatic stay is imposed upon all parties including any
creditor. The automatic stay has the same effect as a time-out in an athletic contest. All players, upon
hearing the whistle blow, should stand still and not improve their position while the bankruptcy court
sorts out the issues. The concept of the automatic stay is outlined in Section 362 of the Bankruptcy
Code. It contains many provisions, and its applicability is often the subject of heated litigation in the
bankruptcy court. The Bankruptcy Code provides, with limited exceptions, that no legal action can pro-
ceed against the debtor during this period unless it is filed in or approved by the bankruptcy court. Cer-
tain criminal actions against the debtor, determination of paternity, collection of alimony, maintenance
or support payments, and enforcement of either government police or regulatory powers and certain oth-
er matters are not affected by the automatic stay. The automatic stay remains in effect throughout a
bankruptcy case unless and until a party in interest requests relief from the automatic stay, which is
sometimes referred to as a lift-stay request. In order to obtain relief from the automatic stay, the party
requesting such relief must establish either "cause, including a lack of adequate protection of an interest
in property" or that the debtor has no equity in the property in question and that the property is not nec-
essary for an effective reorganization. Also, the party requesting relief from the stay, usually the lender,
has the burden of proof on the question of equity.

Statements and Schedules

The debtor’s Statement of Financial Affairs and Schedules are typically the debtor’s first comprehensive
public declaration regarding its assets on the petition date as well as other information regarding the
debtor, including recent payments and transactions, environmental and other litigation, officers and di-
rectors, and so on. The Statements and Schedules are discussed more fully in chapter 6 of this practice
aid.

Claims Bar Date

A claims bar date is set by motion and order of the court. The bar date establishes the date by which all
prepetition claims must be filed with the court or be barred from any recovery from the debtors’ estate.
It is essential in every case to understand if a date has been set and, if it has, to timely file any applicable
claims in advance of that date because courts are very strict in their application of the bar and quite re-
luctant to provide any relief for a late filing.

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