September 2017
The "Devil's Dictionary" is a quick-reference guide for commercial lenders and other restructuring professionals. In this series, we highlight many of the buzz words found in the Dictionary and used in today's bankruptcy arena.

Personal liability of the borrower on an otherwise nonrecourse debt, triggered by the occurrence of a stated contingency such as a bankruptcy filing by the borrower. Section 365(e)(1) invalidates ipso facto clauses in executory contracts and unexpired leases, but a debt instrument qualifies as neither. Nevertheless, in some instances bankruptcy courts have refused to enforce ipso facto clauses beyond the context of executory contracts and unexpired leases. Whether a court would enforce a springing recourse provision triggered by the borrower’s bankruptcy filing is not a settled question of law. Springing recourse is unlike a Springing Guaranty where the borrower’s filing creates recourse for a third party guarantor and not the borrower/debtor itself. Note also that such a “springing recourse” provision is sometimes unnecessary in Chapter 11 because, under certain circumstances, Section 1111(b)(1)(A) converts nonrecourse debt to recourse for purposes of a Chapter 11 case. But Section 1111 does not confer that benefit in a Chapter 7 or Chapter 13 case. 
An order for relief invokes the automatic stay and brings down an iron curtain, separating the pre-bankruptcy from the post-bankruptcy debtor, creating a bankruptcy estate and prohibiting unauthorized transfers of the debtor’s property.

The filing of a voluntary bankruptcy petition automatically produces an order for relief. In an involuntary case an order for relief needs to be actually entered by the bankruptcy court. An order for relief will be entered if the debtor does not contest the involuntary petition or, if the debtor contests the involuntary petition, an order for relief will be entered if (1) the court determines that the debtor is not paying its undisputed debts as they come due, or (2) a custodian (other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property) was appointed or took possession within 120 days before the petition was filed. 

Bankruptcy Code §§ 301(b), 303(h). See also Automatic Stay, Bankruptcy Petition, Involuntary Case, Postpetition Transfer.

The "Devil's Dictionary" is an excellent reference tool that reflects the collective wisdom of its four authors, Brett Anders, Jim Bird, David Ferguson, Dan Flanigan, and digital editor, Christopher Ward, who have a combined total of more than 130 years working in the forefront of real estate and other commercial finance, loan enforcement, financial restructuring and bankruptcy law.