Debtor's Prepetition Agreement Not to Oppose Request to Lift Automatic Stay is Enforced
In a forbearance agreement entered into before bankruptcy, the debtor, an owner of a church securing the loan, agreed that if it filed for bankruptcy, it would not oppose the lender’s motion for relief from the automatic stay (the Waiver). The debtor later defaulted under the forbearance agreement and filed a Chapter 11 case. The lender filed a motion for relief from the automatic stay and argued that the Waiver should be enforced. The Bankruptcy Court for the Northern District of Georgia granted the lender’s motion.
The court reasoned that while the Waiver would not be enforceable if it was included with the original loan documents, there is a policy in favor of enforcement where a Waiver is included in a forbearance agreement and the case is a single asset real estate case. The court noted that the Waiver is not self-executing and that the court would consider several factors in deciding whether to enforce it including: (a) the sophistication of the parties, (b) the consideration for the Waiver, (c) whether other parties would be adversely affected by the Waiver, and (d) the feasibility of the debtor’s plan. Ruling in favor of the lender, the court was persuaded by the sophistication of the parties, the fact that the lender had agreed to a 10-month forbearance, the fact that there was little trade debt and thus minimal harm to other parties, and that the debtor was unable to propose a feasible plan.
Practice Pointer: A bankruptcy court is more likely to enforce a provision in a forbearance agreement in which a debtor agrees not to oppose relief from the stay than provisions prohibiting the filing of bankruptcy or terminating the stay upon a filing. This is particularly true where the collateral is single asset real estate and the parties to the agreement are sophisticated. The Maryland Bankruptcy Court enforced a similarly worded Waiver in the case of Massachusetts Mutual Ins. Co. v. Shady Grove Tech Center Associates L.P. (In re Shady Grove Tech Center Associates LP), 216 B.R. 386 (Bankr. D. Md. 1998).
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