The automatic stay “stays” further actions by creditors to collect pre-petition debt while the bankruptcy case is pending. The automatic stay is designed to maintain the status quo.
The automatic stay takes effect immediately upon the filing of a bankruptcy petition. The automatic stay applies to all creditors. The stay encompasses almost any action that is taken to collect a debt.
Bankruptcy courts can grant relief from the automatic stay to secured creditors who do not have “adequate protection”. A creditor not having “adequate protection” usually means that the creditor is being harmed by the automatic stay–usually through a failure to make payments by the debtor. Bankruptcy courts can also grant relief from the automatic stay if the debtor has no equity in the collateral and it is not necessary to effective reorganization.
A creditor must make a motion for relief from stay in order to receive such relief. If granted, a lender may then proceed in its regular collection action, but should be aware of restrictions on collection if the debtor is ultimately discharged from bankruptcy.
Lenders 101 