In In re DJK Enterprises LLC, 24-60126 (Bankr. S.D. Ill. Feb. 13, 2025), the Bankruptcy Court for the Southern District of Illinois held that pre-petition waivers of the automatic stay are per se unenforceable, rejecting an attempt by a secured creditor to enforce such a waiver against the debtor.
Before filing for bankruptcy, DJK Enterprises LLC (DJK) entered into a forbearance agreement with its primary secured creditor, Effingham Asset Funding (Lender). As part of the agreement, DJK expressly waived its right to invoke the automatic stay in any future bankruptcy proceeding. When DJK later filed for Chapter 11 relief, Lender moved for relief from the stay, relying on the pre-petition waiver in the forbearance agreement to assert that the stay should not apply.
The Court unequivocally rejected the enforceability of pre-petition stay waivers as a matter of law, reasoning that such waivers violate the fundamental policies of the Bankruptcy Code. Relying on the decision in In the Matter of Pease, 195 B.R. 431 (Bankr. D. Neb. 1996), the Court outlined three key reasons why pre-petition waivers are unenforceable: (1) the debtors did not have the capacity to act on behalf of the debtor in possession; (2) the waiver would limit the effectiveness of certain bankruptcy provisions such as §§ 363 365, 541; and (3) the Bankruptcy Code extinguishes the private right to freedom to contract around its essential provisions. The Court concluded that adopting a per se rule with respect to the enforceability of pre-petition stay waivers is the approach that “best protects the rights and interests of the debtor-in-possession and all creditors under the Bankruptcy Code—not just those of the creditor asserting the waiver.”
After considering Lender’s remaining arguments, the Court determined that no other grounds existed to justify modifying the automatic stay.
The decision reinforces that the automatic stay is an indispensable feature of bankruptcy law and serves as a warning to creditors attempting to contract around its protections.
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