Waiver of Automatic Stay

A term sometimes included in workout agreements between lenders and borrowers providing that, in the event of the borrower’s bankruptcy, the borrower waives the benefits of the automatic stay or consents to relief from the stay. The validity of such provisions has been subject to much dispute, with some courts finding them unenforceable per se, others finding them enforceable as a matter of good public policy (encouraging lenders to forbear or otherwise negotiate settlements with borrowers in default, rather than pushing defaulted borrowers precipitously into bankruptcy), and a third camp finding such agreements enforceable as between the lender and borrower (and its equity holders), but not enforceable as to unsecured creditors and other parties in interest – who were not parties to the agreement and who are entitled to be heard regarding whether the stay should remain in effect once a bankruptcy is filed.

Bankruptcy Code § 362. See also Automatic Stay, Motion for Relief from Stay.

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