The Bankruptcy Code and Open Invoices
This guide explains four sections: the automatic stay, a mutual debt and a claim, preferences, and goods received within a stated period before a case begins.
This guide explains federal text, four sections of the United States Bankruptcy Code. It makes no claim about state law, any court, or any company, and it does not say how the text applies to any invoice, deduction or situation. It is not legal advice. Questions about a particular situation are for an attorney.
What does the automatic stay cover?
The automatic stay provision of the Bankruptcy Code says that, except as provided in its subsection (b), a petition operates as a stay, applicable to all entities, of the items it lists, including any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case.
The wording is in 11 U.S.C. 362(a), including 362(a)(6). This guide uses the text's own words, debtor and creditor, and does not say who holds either role in any relationship.
Subsection (b) of 11 U.S.C. 362 lists matters of which the filing of a petition "does not operate as a stay". This guide does not read that list.
What does the Code say about a mutual debt and a claim?
The Code text pairs two items that each arose before the case began: a mutual debt owing by a creditor to the debtor, and a claim of that creditor against the debtor.
Section 553 is headed Setoff. Its subsection (a) begins by making its rule subject to the section's own provisions and to two other named sections, one of which is the automatic stay.
It then says that "this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor", for a debt and a claim that arose before the case began.
The subsection then lists exceptions in numbered paragraphs, and the section has further subsections. This guide does not read them, and it does not say whether any person holds a right described there.
In the stay provision, the text lists "the setoff of any debt owing to the debtor that arose before the commencement of the case under this title against any claim against the debtor" (11 U.S.C. 362(a)(7)). This guide does not say how that item and the rule in 553(a) interact.
What does the Code say under the heading Preferences?
Section 547 is headed Preferences, and its subsection (b) says the trustee may avoid any transfer of an interest of the debtor in property that five numbered paragraphs describe, subject to subsections (c) and (i).
The text adds that the trustee acts "based on reasonable due diligence in the circumstances of the case".
The paragraphs describe a transfer:
- "to or for the benefit of a creditor"
- "for or on account of an antecedent debt owed by the debtor before such transfer was made"
- "made while the debtor was insolvent"
- made within the period that subsection (b) names before the date of the filing of the petition; for a creditor that was an insider, the text names a longer period
- that "enables such creditor to receive more than such creditor would receive if", followed by three lettered subparagraphs that this guide does not read
This list restates the text about a debtor in general. It is not a statement about any company.
Subsection (c) lists transfers the trustee may not avoid. This guide does not read that list.
What does the Code list for goods received within a stated period before a case begins?
Section 503(b) begins "After notice and a hearing" and lists administrative expenses that shall be allowed; one listed item is the value of goods received by the debtor within a stated period before the case began, where the goods were sold to the debtor in the ordinary course of the debtor's business.
The lead-in also carries one stated exclusion, for claims allowed under another section.
11 U.S.C. 503(b)(9) reads "the value of any goods received by the debtor" within the stated period, "in which the goods have been sold to the debtor in the ordinary course of such debtor's business".
This guide reads only that lead-in and that listed item. Section 503 has other subsections, including one that begins "Notwithstanding subsection (b)", and this guide does not read them. It makes no statement about payment.
Questions
Does the automatic stay have exceptions?
- Subsection (a) of the automatic stay provision begins "Except as provided in subsection (b) of this section". Subsection (b) lists matters of which the filing of a petition "does not operate as a stay".
Is this legal advice?
- No. It explains cited text only and does not say how the text applies to any invoice, deduction, company or situation. Questions about a particular situation are for an attorney.
Does this guide cover state law or the rest of the Code?
- No. It explains four sections of the federal Bankruptcy Code and makes no claim about state law, other sections, or any court.
Sources: Cornell Legal Information Institute, which publishes the United States Code: 11 U.S.C. 362, 553, 547 and 503. The legislative notes on those pages are not used. This guide reflects the text as published there when it was written.