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Automatic Stay- a Strong Tool.

Posted by Kevin on May 23, 2011 under Bankruptcy Blog | Be the First to Comment

It is the law that a bankruptcy filing acts as an automatic stay of most collection efforts against the debtor.  But how broad is that protection?  In a recent case in the Eastern District of New York (In re: Ebadi), the stay went beyond property owned by the debtor.  The debtor was a shareholder of CBC Media Realty.  CBC owned a commercial building which it used as collateral for a loan.  The debtor personally guaranteed the loan.  CBC defaulted on the loan and the creditor obtained a foreclosure judgment.  The debtor was named as a defendant in the foreclosure case.  Just prior to the sale, the debtor filed a Chapter 13 and notified the foreclosing creditor of the filing.  The creditor went ahead with the sale anyway.

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