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    Business Law Legal Research Blog

    BANKRUPTCY: Reluctant Judicial Enforcement of Prepetition Automatic Stay Waivers

    Posted by Anne B. Hemenway on Thu, Dec 13, 2018 @ 12:12 PM

    Anne Hemenway—Senior Attorney, National Legal Research Group


    Courts are reluctant to enforce prepetition automatic stay waivers, but will not rule out the possibility of enforcement. Often found as a clause in a forbearance agreement, prepetition automatic stay waivers are therefore not per se unenforceable, notwithstanding the fact that their close relative, prepetition waivers of bankruptcy filings, are per se unenforceable. See In re Simpson, Case No. 17-10442, 2018 WL 1940378 (Bankr. D. Vt. Apr. 23, 2018). Generally, courts will hold that the debtor must carry the burden of proving that such contractual waivers should not be enforced. In re A. Hirsch Realty, LLC, 583 B.R. 583 (Bankr. D. Mass. 2018). 


    In a recent Chapter 11 case, the court acknowledged that there are some instances when a stay waiver may be enforced, but courts will always consider the factual circumstances in which the waiver arose and the waiver will be considered "as one of a number of factors, including the possibility of equity in the collateral and the impact of third-party creditors affected by the motion for relief from stay." Id. at 602. Courts will also look at the connection between the date of the waiver agreement and the date of the bankruptcy filing and "whether there was a compelling change in circumstances during that time." In re BGM Pasadena, LLC, Case No. 2:16-cv-03178-CAS, 2016 WL 3212243 (C.D. Cal. June 2, 2016).

    Debtors should review forbearance agreements or settlement agreements closely and question automatic stay waivers even if the debtor is not actively considering bankruptcy. More often, it is difficult for debtors to meet their burden down the road of convincing a court that the waiver, entered into in an arm’s-length transaction, is not enforceable.

    Topics: bankruptcy, Anne Hemenway, prepetition automatic stay waivers, preclusive effect, forebearance waiver

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