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With New Year’s upon us, there are many businesses — small and big, thriving and struggling — that will be asking many questions about their fiscal situation. The financial health of any organization is paramount to almost any other issue.

Chapter 11 bankruptcy could actually be considered a “healthy” option for some businesses. Chapter 11 can allow insolvent companies to pay back their debt under different conditions than what their creditors originally imposed. This revised deal can reduce the amount paid for regular installments and extend the length of time an organization has to pay back the debt. By freeing up the finances, a company in Chapter 11 can look to improve their outlook in 2013.

The issue of student loans and the debt college graduates carry after they graduate has been a hot topic ever since the worldwide financial crisis of 2008. While steps are being taken to recover from that meltdown and though things seem to be getting better, it is still an uneasy economic time in Los Angeles and, indeed, all across the country.

It goes without saying that filing for bankruptcy requires the insolvent party to consult an experienced attorney. Most people, though, would assume that the most important role a lawyer plays for the bankrupt party is to handle the complicated issues of a Chapter 7 or Chapter 13 filing. To the contrary, often times it is the simplest of mistakes that can trip up an insolvent individual during their bankruptcy proceedings.

Last week, we discussed some of the key Chapter 11 bankruptcy terms. We continue our discussion this week, defining some of the main actions you may see in a Chapter 11 bankruptcy.

Automatic stay: Bankruptcy triggers an automatic stay. The “automatic stay” stops all judgments and collection activities (including foreclosures) for a period of time. This means that creditors cannot take action to collect on a debt, giving the debtor time to negotiate a Chapter 11 bankruptcy plan to pay back his or her debts. The automatic stay does not apply to certain actions, such as actions to withhold in repayment a pension, stock bonus, etc.


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