What if the bankruptcy court will not lift the automatic stay?

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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If a bankruptcy court determines that it will not lift the automatic stay, the proof of claim becomes, in effect, a complaint in the bankruptcy court, and the claim (both validity and amount) will be decided in the bankruptcy court or the district court. This is called an adversary proceeding and continues within the bankruptcy as if you had a lawsuit pending. Bankruptcy courts have adopted rules of procedure similar to those of a regular district court. Instead of your civil suit beginning or continuing through a district court, it will be heard by the bankruptcy judge under similar rules. As with any lawsuit, it’s best to have the advice of counsel to ensure that you don’t miss deadlines or waive procedural safeguards. 

There are times, however, when a Chapter 11 debtor will for specific reasons (usually associated with a shortage or lack of funds to pay litigation counsel) will concede the claim and attempt to reduce or re-characterize it in a plan of reorganization. This is a very technical and complicated procedure and counsel is absolutely necessary for the claimant. This process is referred to as restructuring, and it can definitely affect a litigant’s rights and liabilities.

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