Smart Summary for Commercial Landlords

A debtor that files a bankruptcy proceeding is automatically protected from collection actions by the bankruptcy “stay,” which stops all creditor actions to collect pre-petition debts. However, excluded from the stay is the “commencement or continuation of a criminal action or proceeding against the debtor.” This is called the “criminal prosecution exception” to the automatic stay. For example, the automatic stay does not stop a criminal prosecution for theft or passing bad checks.

Lenders make secured loans expecting to recover the collateral in the event of a default. The collateral is sold to satisfy the debt. Experienced secured lenders understand that the automatic stay in bankruptcy stops recovery of collateral recovery without permission of the court. However, many secured lenders do not understand rights related to the statement of intention every debtor is required to send to each secured creditor.

Extending credit to a financially shaky customer is risky. When the customer files a chapter 11 bankruptcy case and continues to operate, the risks multiply. Properly understood, some of the inherent risks can be reduced.