An automatic stay is the injunction that takes effect, without any judge signing anything, the instant a bankruptcy petition is filed in the United States. Set out in section 362 of the Bankruptcy Code, it halts almost every attempt by creditors to sue the debtor, collect a debt, seize property or enforce a lien. The Senate report accompanying the 1978 legislation called it "one of the fundamental debtor protections provided by the bankruptcy laws," adding that "it gives the debtor a breathing spell from his creditors." The aim is to replace a race to the courthouse, in which the fastest creditor takes the most, with one collective process run by a single court.

For the advertising business, the stay decides what happens to unpaid invoices, pending lawsuits and live contracts when a publisher, ad tech vendor or AI company goes bankrupt. It surfaced again this week, when Character.ai asked a Delaware court to restate and enforce the "worldwide automatic stay" a day after filing for Chapter 11.

How the stay works

The stay applies on filing in every chapter, from Chapter 7 liquidations to Chapter 11 reorganisations. Nobody needs to be served for it to bind them, although a creditor without notice is usually spared sanctions for innocent violations.

Section 362(a) lists eight categories of prohibited acts:

  • starting or continuing a lawsuit or administrative proceeding over a claim that arose before the filing;
  • enforcing a pre-filing judgment;
  • taking possession of, or exercising control over, estate property;
  • creating, perfecting or enforcing a lien against estate property;
  • doing the same against the debtor's own property for a pre-filing claim;
  • any act to collect a pre-filing claim;
  • setoff, netting a debt owed to the debtor against a claim against it;
  • US Tax Court proceedings on the debtor's tax liability.

In practice, a publisher owed three months of revenue by a bankrupt supply-side platform (SSP) cannot sue for it, hand it to a collection agency or withhold money it owes the same company. The claim does not disappear. It becomes a pre-petition claim in the bankruptcy case, ranked alongside other unsecured debts and often paid at a fraction of face value. Services supplied after the filing are generally paid as administrative expenses, ahead of that queue.

Two related provisions do much of the commercial work. Section 365(e) makes most ipso facto clauses unenforceable, so a counterparty cannot terminate a contract simply because the other side filed. Section 525 bars governmental units from discriminating against a debtor because of the filing. Character.ai's motion, docket number 7 in case 26-11603, asks the court to confirm all three protections and warns of contempt, fines and sanctions.

What the stay does not cover

Section 362(b) lists nearly 30 exceptions. The most consequential are criminal proceedings, tax audits and two others:

  • Police and regulatory power. Section 362(b)(4) lets a governmental unit pursue an action "to enforce such governmental unit's or organization's police and regulatory power." Collecting a money judgment remains stayed.
  • Financial safe harbours. Paragraphs (b)(6), (7), (17) and (27) let counterparties to securities contracts, repurchase agreements, swaps and master netting agreements close out and net positions despite the filing.

The regulatory exception is where state enforcement against data-heavy companies meets bankruptcy. California's attorney general sued 23andMe on May 27, 2026, more than a year after the genetic testing company's March 23, 2025 filing, in a complaint brought under state police and regulatory powers and therefore not subject to the automatic stay.

The stay protects only the debtor and its property. Directors, co-founders, insurers and co-defendants are generally outside it unless the court extends protection, usually through a separate injunction under section 105.

Relief, duration and violations

Creditors can ask for relief from stay under section 362(d). The court must grant it "for cause, including the lack of adequate protection of an interest in property," or where the debtor has no equity in property that is not needed for a reorganisation. A lender whose collateral is losing value, or a plaintiff whose case belongs in another court, typically argues cause. Under section 362(e), the stay ends for the moving party 30 days after the request unless the court, after a hearing, finds a "reasonable likelihood" the debtor will prevail.

Otherwise the stay lasts until property leaves the estate, or the case is closed, dismissed or a discharge is decided. Since 2005, an individual whose previous case was dismissed within a year gets only 30 days of protection unless extended, and one with two or more recent dismissals gets none. Section 108 extends limitation periods so that creditors are not penalised for waiting.

Most federal circuits treat acts taken in violation of the stay as void. A minority, including the Fifth Circuit, has called them voidable. Individuals injured by a willful violation "shall recover actual damages, including costs and attorneys' fees," under section 362(k). Corporate debtors rely on civil contempt instead.

Origin and evolution

Before the 1970s, a stay had to be sought case by case. Rules of bankruptcy procedure promulgated from 1973, including Rule 11-44 for Chapter XI cases, introduced automatic stays reflecting a "broad and automatic stay policy," according to Bloomberg Law.

The Bankruptcy Reform Act of 1978, signed on November 6, 1978, and effective October 1, 1979, made the stay statutory. The 1984 amendments added a damages remedy for individuals. Swap and repo safe harbours widened in 1990, 2005 and 2006. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) added the repeat-filer limits and created Chapter 15, under which US recognition of a foreign main proceeding triggers the stay for assets in the country.

The Supreme Court has since refined it. In Ritzen Group v. Jackson Masonry, on January 14, 2020, it held unanimously that an order denying stay relief must be appealed immediately. In City of Chicago v. Fulton, on January 14, 2021, it ruled that merely retaining estate property, in that case impounded cars, does not violate the stay. The GENIUS Act of July 18, 2025, added provisions on payment stablecoin redemptions, according to Cornell's Legal Information Institute.

Why it matters for marketers and ad tech

Ad tech failures leave chains of small unsecured creditors. When EMX and its parent Big Village filed in Delaware in February 2023, publishers complained online about months of overdue payments, and the stay left them unable to sue or offset. When Sizmek filed in March 2019, Index Exchange, PubMatic and OpenX were among its largest listed creditors.

The stay also shields data and contracts while a sale is arranged. Character.ai's motion asks the court to bar "attempts to interfere with the Debtor's online operations" while a Disney stalking horse bid of $20 million for a licence to its intellectual property proceeds. Its proposed order carves out governmental police and regulatory actions "not otherwise stayed." Pennsylvania, which sued Character Technologies on May 1, 2026, had a responsive pleading deadline of November 2, 2026. Whether that case falls within the exception is a question the first-day papers leave open.

Limitations and disputes

Reach to non-debtors. In A.H. Robins v. Piccinin (1986), the Fourth Circuit extended protection to non-debtors in "unusual circumstances." Johnson & Johnson's talc subsidiary LTL Management filed in October 2021 and obtained an injunction shielding its parent. On January 30, 2023, the Third Circuit ordered the case dismissed, holding that good faith requires financial distress "immediate enough to justify a filing."

Safe harbours. Critics argue that derivatives exemptions let the largest counterparties run on a failing firm, as after Lehman Brothers filed in September 2008, while trade creditors such as publishers stay frozen.

Cross-border limits. A "worldwide" stay depends on foreign courts respecting it. After Hanjin Shipping entered receivership in Seoul on August 31, 2016, its ships faced seizure abroad until it sought US protection in Newark on September 2. Character.ai's proposed order concedes it "does not expand or enlarge the rights afforded to the Debtor."

Automatic stay compared with similar terms

  • Stay pending appeal. A discretionary order suspending a judgment during an appeal, often conditioned on a bond.
  • Moratorium. The UK's Part A1 moratorium, in force since June 26, 2020, lasts an initial 20 business days, extendable to a year, under a monitor. The EU's 2019 Restructuring Directive caps an initial stay at four months and the total at 12.
  • Preliminary injunction. Granted only after a court weighs evidence; the automatic stay requires no showing at all.
  • Debtor-in-possession. A debtor-in-possession is the bankrupt company running its own business in Chapter 11. The stay protects it while it does so.

Recent developments

Character Technologies filed on October 12, 2026, before Judge Brendan Linehan Shannon, and a first-day hearing was set for 1:30 p.m. Eastern today. Disney's notice of appearance reserved its jury trial rights, with the auction proposed for November 23 and the sale hearing for November 24, 2026.

Getty Images, suspended by the NYSE in September 2026 with $1.47 billion of debt, announced on October 12 a prepackaged Chapter 11 case to be filed "in the coming weeks," according to Law360. Until a petition is filed, no stay protects it.

Timeline

  • 1973: Rules of bankruptcy procedure begin introducing automatic stays in rehabilitation cases.
  • November 6, 1978: Bankruptcy Reform Act signed, creating section 362.
  • October 1, 1979: The Bankruptcy Code, including the automatic stay, takes effect.
  • 1984: Amendments add a damages remedy for individuals (then 362(h)) and the 30-day hearing rule in 362(e).
  • 1986: Fourth Circuit decides A.H. Robins v. Piccinin, extending protection to non-debtors in unusual circumstances.
  • 1990: Swap safe harbour added to section 362(b).
  • 1994: Single asset real estate rule added as 362(d)(3).
  • April 20, 2005: BAPCPA signed, adding repeat-filer limits, section 362(k) and Chapter 15; effective October 17, 2005.
  • September 2008: Lehman Brothers files; derivatives counterparties close out under safe harbours.
  • August 31, 2016: Hanjin Shipping files for receivership in Seoul; US provisional Chapter 15 relief follows on September 6 and 9.
  • March 2019: Sizmek files for Chapter 11 in New York.
  • January 14, 2020: Supreme Court decides Ritzen Group v. Jackson Masonry.
  • June 26, 2020: UK Part A1 moratorium comes into force.
  • January 14, 2021: Supreme Court decides City of Chicago v. Fulton.
  • October 2021: LTL Management files for Chapter 11.
  • January 30, 2023: Third Circuit orders the LTL case dismissed.
  • February 2023: EMX and Big Village file in Delaware.
  • June 27, 2024: Supreme Court decides Harrington v. Purdue Pharma.
  • March 23, 2025: 23andMe files in the Eastern District of Missouri.
  • July 18, 2025: GENIUS Act adds stablecoin provisions to section 362.
  • May 27, 2026: California sues 23andMe under its police and regulatory powers.
  • October 12, 2026: Character Technologies files in Delaware; Getty Images announces a planned prepackaged Chapter 11.
  • October 13, 2026: Character.ai moves to restate and enforce the worldwide automatic stay.

Summary

Who: Every debtor that files for bankruptcy in the United States, and every creditor, litigant and counterparty with a claim against it; bankruptcy judges decide requests for relief, and governmental units act under the regulatory exception.

What: An injunction under section 362 of the Bankruptcy Code that automatically halts lawsuits, judgment enforcement, debt collection, lien enforcement, setoff and seizures of estate property, subject to listed exceptions.

When: It takes effect the moment a petition is filed and lasts until property leaves the estate, the case closes or is dismissed, a discharge is decided, or a court grants relief. It became statute in the 1978 Act, effective October 1, 1979.

Where: US bankruptcy courts, with large corporate cases concentrated in Delaware, the Southern District of Texas and the Southern District of New York; Chapter 15 extends it to US assets of foreign debtors, while the UK and EU operate their own moratoriums.

Why: It stops a race among creditors, preserves the business while a reorganisation or sale is negotiated, and gives the debtor a breathing spell, though critics point to its uneven treatment of derivatives counterparties and its use to shield non-debtors.