Automatic Stays Under the New Bankruptcy Law

In Mueller v. Nugent, decided shortly after the enactment of the Bankruptcy Act of 1898, the United States Supreme Court declared that a petition in bankruptcy is “a caveat to all the world, and in effect an attachment and injunction.” This judicial gloss, much quoted and applied since, was an early recognition that a stay of creditors from collecting their claims against the debtor and his property from and after the filing of a petition under the Bankruptcy Act is indispensable to bankruptcy administration. Unless the creditors are stayed, the debtor’s estate will be dismembered and the objective of equality of distribution defeated. The fresh start sought by the bankrupt in invoking the bankruptcy laws is likely to be compromised by permitting the continuation of actions against him. All the property of the bankrupt in his possession is brought into the custody of the bankruptcy court by the filing of the petition, and no interference with that custody can be countenanced without the court’s permission. The bankruptcy court’s control has been buttressed with statutory power and inherent power as a court of equity to enjoin litigation and acts of creditors and others insofar as necessary to effectuate bankruptcy objectives.