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DJK Enterprises: Prepetition Waiver of Automatic Stay In Previously Negotiated Forbearance Is Unenforceable
A recent bankruptcy court decision has added its perspective to an increasingly divergent line of case law scrutinizing the enforceability of a debtor’s prepetition waiver of the automatic stay afforded to it by Section 362(a) of the Bankruptcy Code. In the case of In re DJK Enterprises, (Case No. 24-61026), the U.S. Bankruptcy Court for the Southern District of Illinois held that a debtor’s prepetition waiver of the automatic stay contained in a previously negotiated forbearance agreement was per se unenforceable.
Facts and Procedural History
In this case, the debtor, DJK Enterprises LLC, was the owner and operator of a full-service hotel and convention center. Those properties were encumbered by a $10.5 million mortgage securing a note in favor of St. Louis Bank who, in turn, assigned its claim to Effingham Asset Funding.
Prior to the petition date, DJK defaulted on its obligations owing to EFA. In an effort to restructure the debt, DJK and EFA entered into a forbearance agreement. In consideration for EFA’s agreement to forbear from enforcing its rights and remedies it was entitled to as a result of DJK’s default, DJK agreed to, among other things, repay the outstanding indebtedness owing to EFA, in full, within 75 days of the effective date of the agreement. If DJK was unable to pay off the loan within the prescribed period, DJK agreed to convey the real property to EFA via a deed in lieu of foreclosure.
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