For the beleaguered company struggling for a profit and fighting valiantly through costs, claims, and creditors to keep the ship afloat, a "breathing spell" can be very attractive. The United States Bankruptcy Code provides a breathing spell. The technical name is the "automatic stay" (a freeze or stop sign against creditor action). The automatic stay operates as a temporary injunction or prohibition against creditor collection or enforcement action.
When a lender has a claim against a bankruptcy debtor, and the claim is secured by a lien on property of the debtor, the Bankruptcy Court balances the interests of the lender and the borrower-debtor in the property. One such balancing concerns the debtor's use of the property, the collateral. For example, if the collateral is investment real estate, the loan documents may identify additional components of collateral, such as personal property and â€œcash collateralâ€ such as rents. An assignment of rents may entitle the lender to receive all rents.