We see this pattern regularly in commercial litigation: a defendant facing an imminent trial files a bankruptcy petition, expecting the automatic stay under 11 U.S.C. § 362(a) to freeze everything. And it does—temporarily. But the stay is not a merits ruling, and it is not necessarily permanent.
The real question is not whether the filing pauses the case. It is whether the bankruptcy court will keep it paused once the opposing party moves for relief from stay, abstention, or remand. In a mature business dispute involving predominantly state-law claims, the answer is often no.
Bankruptcy courts have tools to prevent a petition from becoming a litigation-delay device. They can grant relief from the stay “for cause,” abstain from hearing non-core state-law disputes, or remand removed actions “on any equitable ground.” When the timing of a filing suggests it was designed to avoid a trial-ready forum, courts notice.
Relief From Stay: A Practical, Case-Specific Analysis
Section 362(d)(1) provides that a bankruptcy court “shall grant relief from the stay” for “cause.” The Bankruptcy Code does not define “cause,” which gives courts substantial discretion.
In the Ninth Circuit, courts apply the Curtis factors when a movant seeks to continue litigation in a non-bankruptcy forum:
- Judicial economy
- Trial readiness
- Prejudice to the parties
- Connection between the litigation and bankruptcy administration
- Whether state-law issues predominate
The Ninth Circuit BAP reaffirmed this approach in Merriman v. Fattorini (In re Merriman), 616 B.R. 381 (B.A.P. 9th Cir. 2020), emphasizing that the factors are not mechanical and need not be weighted equally in every case.
This matters most when a state-court action has been pending for years, discovery is complete, the trial court knows the dispute, and the claims are governed by state law. In that posture, the movant has a strong argument that stay relief promotes judicial economy rather than undermines bankruptcy administration. The debtor, meanwhile, faces an uphill battle arguing that a bankruptcy court should displace a forum already positioned to resolve the claims.
In re Conejo Enterprises, Inc., 96 F.3d 346 (9th Cir. 1996), confirms that the mere existence of a prepetition state action does not automatically require stay relief—but neither does bankruptcy jurisdiction justify holding a mature state-court case indefinitely. The analysis turns on practical administration, prejudice, and the relationship between the lawsuit and the estate.
Removal to Bankruptcy Court Is Not the Same as Staying There
A related issue arises when a debtor removes a pending state-court action under the bankruptcy removal statute. Removal gets the case into bankruptcy court—but it does not guarantee it stays there.
Under 28 U.S.C. § 1452(b), the court may remand a removed claim “on any equitable ground.” Courts evaluating equitable remand consider:
- Effect on estate administration
- Predominance of state-law issues
- Comity
- Degree of relatedness to the main bankruptcy case
- Existence of nondebtor parties
- Right to jury trial
- Whether removal appears to be forum shopping
Where the dispute is a two-party state-law business case, where nondebtor parties remain involved, and where the state court was already prepared to adjudicate the matter, equitable remand is a powerful response.
Abstention: State-Law Claims May Still Belong in State Court
Even apart from remand, abstention can produce the same result. Mandatory abstention under 28 U.S.C. § 1334(c)(2) applies when the proceeding is based on state law, is non-core, lacks an independent federal jurisdictional basis, was commenced in state court, and can be timely adjudicated there.
Discretionary abstention under § 1334(c)(1) is broader. It permits the bankruptcy court, in the interest of justice, comity, or respect for state law, to abstain from hearing a proceeding related to a bankruptcy case. In business disputes, the abstention factors often overlap with the equitable-remand analysis: if the state court is the natural forum and the bankruptcy nexus is limited, both doctrines point in the same direction.
What This Looks Like in Practice
A recent Los Angeles business-litigation matter illustrates how these doctrines operate together. The underlying state-court action had been filed in 2024, involved state-law claims, and had advanced to the point where the court was prepared to proceed with trial. After bankruptcy-related activity interrupted the case, the creditor sought both relief from the automatic stay and remand of the removed action.
The bankruptcy court granted relief on both fronts. On stay relief, the court focused on the age and posture of the state-court action, the predominance of state-law claims, the absence of prejudice to other creditors, judicial economy, trial readiness, and the balance of harm. On remand, the court relied on equitable considerations—including that remand would not impair estate administration, the claims arose under state law, and the creditor faced prejudice because the state court had been prepared to proceed with trial when the action was removed.
The lesson is straightforward: the closer a case is to trial, the more a bankruptcy filing looks like delay rather than restructuring. Courts will act accordingly.
What This Means for Business Litigants
If you are a plaintiff or creditor: A bankruptcy filing should trigger immediate procedural analysis, not resignation. Ask whether the claims can be liquidated in the non-bankruptcy forum without disrupting estate administration, whether the matter is non-core, whether state-law issues predominate, and whether trial readiness supports expedited relief. Speed matters—the response often requires immediate motion practice in bankruptcy court.
If you are a defendant or debtor: Bankruptcy should be evaluated as a restructuring tool, not a substitute for trial strategy. A filing made immediately before trial may generate a record that supports stay relief, remand, or a finding that the timing is inequitable. Even when the automatic stay applies initially, the practical benefit may be short-lived.
For business owners generally: Litigation posture matters. Courts assessing stay relief and remand consider the full procedural history—the state case, the burden on the parties, the effect on the estate, and whether the bankruptcy court is the appropriate forum for state-law commercial claims.