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Massachusetts Agencies

Bankruptcy of Lienholder: Automatic Stay


It seems that 11 USC 362 (a)(5) applies to this situation and creates an automatic stay where the subordinate lienor files for bankruptcy. Clearly, the term "legal and equitable interests of the debtor," as that term is used in the Code, includes security interests. See Collier, Real Estate Transactions and the Bankruptcy Code, Matthew Bender, ¶1.06.[1] The automatic stay provisions of the Code apply to "any act to . . . enforce against property of the debtor any lien . . . ." It seems that the foreclosure of a prior mortgage falls directly into this situation, and such foreclosure would be prohibited by the automatic stay where the junior mortgagee had declared bankruptcy.