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.

FORUM SHOPPING:

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. 

The practice of a debtor filing its Chapter 11 case in a district that the debtor believes will provide it with the greatest chance of success. A debtor often has a number of choices with respect to the district in which it will file, and critics have complained that debtors (particularly large, public companies) file their Chapter 11 cases in historically pro-debtor districts such as the District of Delaware or the Southern District of New York despite having only a very limited presence in or connection to the district selected. Forum shopping sometimes also refers to the practice of a debtor creating facts to support venue in a given district (such as moving the debtor’s principal place of business or assets to the desired district) or a debtor taking advantage of the statutory provision allowing a debtor to commence a case in any district in which a Chapter 11 case of an affiliate of the debtor is pending.

Bankruptcy Code § 1112. See also 28 U.S.C. § 1408, Bad Faith Filing, Dismissal, Jurisdiction.


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.