Mabey on In re Bryan Road

Mabey on In re Bryan Road

 
It has long been a controversial practice for a bankruptcy court to enforce a waiver of the automatic stay in a bankruptcy case–especially when the waiver has not been entered into during the course of a previous chapter 11 plan. In In re Bryan Road LLC, a Florida bankruptcy court enforced such a waiver contained in a prepetition forbearance agreement. In his Expert Commentary on the decision, the Hon. Ralph R. Mabey explains that, while the decision was thoughtfully and cogently considered, the result is questionable for a number of reasons, including the fact that only the representative of the estate, the debtor in possession, should be in a position to waive rights of the estate. For this and other reasons, the decision inflicts "unnecessary violence upon the delicate structure" of the Bankruptcy Code. Until it is superseded, Bryan Road is a warning signpost for debtors and a guiding signpost for secured creditors.
 
Judge Mabey writes: One of the overarching functions of the federal bankruptcy law is to provide forums and mechanisms for collective resolution of debtor-creditor matters. Bankruptcy cases resolve the collective action problems created under traditional, nonbankruptcy “grab rules.” Toward this end, 11 U.S.C. § 362(a) provides for an automatic stay of various actions against the debtor and the property of its bankruptcy estate, without which creditors would have every incentive to indulge in the value-destroying “race to the courthouse” that justifies the enactment of a broad federal regime in the first instance.
 
The automatic stay, of course, is not all-encompassing. Congress has seen fit to codify a list of actions that are categorically excepted from the stay in section 362(b). Congress periodically expands that list, most recently by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (particularly as to certain financial transactions). Likewise, 11 U.S.C. § 362(d) provides bankruptcy courts with authority to grant relief from the automatic stay on a case-by-case basis, including when “cause” is present or when the debtor has a filed a “single asset real estate” case and does not move forward smartly.
 
Notably, nothing in section 362 provides for the enforcement of a prepetition waiver of the automatic stay. Nevertheless, certain courts have enforced such waivers, particularly when they were executed as part of an earlier bankruptcy case. Bryan Road reinvigorates the debate over this issue as to first lien mortgage foreclosures. In parallel, the debate rages as to the permissible impact of intercreditor agreements upon statutory rights in bankruptcy, such as the automatic stay.