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BankruptcyThe Bankruptcy StrategistFeatures

Harmonizing a Debtor’s Right to File for Bankruptcy Against a Creditor’s Desire to Protect Its Financial Interests

By Francis J. Lawall and Hanna J. Redd
March 01, 2025

In the United States, a debtor’s ability to seek a fresh financial start through bankruptcy is constitutionally protected. Therefore, courts routinely invalidate restrictions designed to limit a debtor’s ability to file a voluntary bankruptcy petition as void against public policy. Nevertheless, it is not uncommon for a business entity’s governing documents to contain limitations or restrictive requirements that must be satisfied before bankruptcy protection can be sought. Oftentimes, these provisions allow a single person (or entity) to block a bankruptcy filing, whether by holding a “golden share” or simply by withholding consent. How to harmonize a debtor’s right to file against a creditor’s desire to protect its financial interests in that debtor has sparked a number of different judicial opinions.

A recent decision from U.S. Bankruptcy Court Judge David Cleary for the Northern District of Illinois addresses this issue head on and found that filing restrictions aren’t always per se violative. See, In re 301 W. North Avenue, Case No. 24 B 2741 (Bankr. N.D. Ill. Jan. 6, 2025). Cleary’s decision suggests that when certain protections for the debtor are in place, limitations imposed by creditors on seeking bankruptcy relief are permissible.

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