What Does Injunction Mean in Bankruptcy?
- A civil court can prevent a wrong or injury to one party by issuing an injunction against another party. This type of injunction is called a prohibitory injunction, because it orders a party to refrain from engaging in a specific activity. Some injunctions are permanent, while other injunctions are not permanent. Non-permanent injunctions would relate more to the bankruptcy process than would permanent injunctions. A non-permanent injunction continues in effect until the court vacates, modifies or overturns it.
- One type of non-permanent injunction is a preliminary injunction. The preliminary injunction acts to maintain the status quo until each party’s claim can be investigated and adjudicated in a court of law. When determining whether to issue a preliminary injunction, courts examine the following factors: the likelihood that the petitioning party will succeed on the merits; whether the petitioner will suffer irreparable harm if the court does not grant the injunction; whether the issuance of the injunction would harm other interested parties; and what effect the injunction would have on the public interest.
- A bankruptcy court can prevent a debtor’s creditors from seeking payment by issuing an automatic stay. An automatic stay is an injunction that prevents a creditor from collecting. When a debtor petitions the bankruptcy court in pursuit of a discharge under the federal bankruptcy code, an automatic stay goes into place and the court issues an order for relief to all of the debtor’s creditors. The order for relief notifies each creditor that he is prohibited from attempting to collect payment or property from the debtor. The automatic stay continues in effect unless the bankruptcy court grants a relief from the automatic stay to an individual creditor.
- During the bankruptcy case, a trustee will be appointed to the debtor’s case. The automatic stay acts as a temporary fix to allow the debtor breathing room from his creditors while the bankruptcy trustee sorts out the debtor’s finances. The debtor will investigate each creditor’s claim and determine which creditors will be paid and in what priority. After the bankruptcy trustee has settled these issues and the bankruptcy court grants the debtor a discharge, the automatic stay ends.