Indiana Law Review


The Mythology of Waivers of
Bankruptcy Privileges

Thomas G. Kelch*
Michael K. Slattery

4

Introduction

Contractual waiver of privileges
1

granted by the Bankruptcy Code is
surrounded by a mythology. The mythology is expressed in an assumption that
bankruptcy privileges are essentially non-waivable. This assumption is then

cloaked in the armor of the Constitution, statutory language and public policy.

Several recent court decisions that have enforced contractual waivers of

bankruptcy privileges in certain narrow contexts have challenged this mythology.

That the mythology still exists, however, is evident from cases continuing to deny

the validity of such waivers and practitioners who whisper in the dark that
waivers must be limited to narrow circumstances lest the whole house of cards
fall to the reality that bankruptcy privileges really are not waivable.

2

Much more important rights and privileges may be waived at a whim. We
can waive the privilege against self-incrimination, the right to a jury trial, and
innumerable other constitutional, statutory and common law rights without
hesitation or fanfare. Thus, we may flippantly sacrifice our freedom or, perhaps,
our life in a capital offense. However, we may rarely, if ever, waive the
privileges provided by the Bankruptcy Code due to this bankruptcy waiver
mythology.

Why do we have this mythology? How did we come to have it? Is there
some historical explanation? How should attempts to waive the privileges of
bankruptcy be treated in a world where this mythology is unmasked? All ofthese

issues will be explored.

Given the law ofwaiver as it exists elsewhere in the law, it is maintained in

this Article that the present view of contractual waiver of privileges in
bankruptcy is enshrouded in falsities and half-truths that can be remedied by
looking at the issue not as a sort of exalted class of bankruptcy issue but as

waiver is viewed in other contexts—as a purely contractual issue. This Article
will first analyze the present state of the law relating to waiver of bankruptcy

privileges. Second, it will search for the sources of the idea that privileges in

* Professor of Law, Whittier Law School. B.G.S., University of Michigan; J.D., magna
cum laude, University of Michigan. The authors are indebted to Professor Frank R. Kennedy for
his insightful comments on an earlier draft of this Article.

** Of Counsel, Rutan & Tucker LLP, Costa Mesa, California, specializing in bankruptcy
law. B.A., 1978, Princeton University; J.D., 1982, University of Southern California School of

Law.

1

.

The phrase, "bankruptcy privileges" is used purposefully to emphasize, as will be shown,

that there are no "bankruptcy rights."

2. In regard to caution concerning practitioner overuse of waivers, see Michael St. Patrick

Baxter, Prepetition Waivers ofthe Automatic stay: A Secured Lender's Guide, 52 Bus. LAW. 577

(1997).



898 INDIANA LAW REVIEW [Vol. 31:897

bankruptcy generally may not be waived. Third, we will analyze the concept of
contractual waiver generally and determine the appropriate circumstances for

enforcement of contractual waivers of statutory privileges. Fourth, this latter

analysis will be applied to statutory bankruptcy privileges to ascertain when such
privileges may appropriately be waived.

The thesis that will emerge is that accepted views of waivers of bankruptcy
privileges are gripped by a mythology and that, properly analyzed under the law
of contractual waiver, bankruptcy privileges should be freely waivable given

satisfaction of certain requisites of the law of contract.

I. Present Law

A. The Present Case Law

Over the past ten years, creditors have experimented with pre-bankruptcy
"workout" agreements that allow uncontested relief from stay if the borrower

petitions for bankruptcy relief. It is primarily in this area that the battle over

waiver of bankruptcy privileges has been fought, and it is these cases on which

we will focus. Based largely on loosely articulated perceptions of public policy,
the courts have been very reluctant to enforce agreements containing stay

waivers. The judicial opinions in this area offer no real analysis of the issue as
one of contractual waiver of a statutory right which is, as will be shown, the true

issue here. The authors think this case law is the product of vestigial depression-
era sympathy for borrowers that places bankruptcy and debtor-creditor law on a

different plane from other law with respect to waiver.

The cases fall into three basic groups.
3 A few courts enforce waivers, most

treat waivers as a factor to be considered in relief from stay litigation, and a small

number flatly prohibit waivers for reasons of policy.4

Two cases from the late 1980s do seem to enforce relief from stay
agreements.

5
These cases, In re Club Tower and In re Citadel Properties,

carefully distinguish such agreements from outright waivers of the privilege of

filing bankruptcy, which nearly everyone believes run counter to public policy.
6

On a close reading, it seems that the courts in both cases had more than waiver
provisions on which to rely. The courts also relied on the finding that the cases

3. Id. at 579-87.

4. Id.

5. In re Club Tower, L.P., 138 B.R. 307, 311 (Bankr. W.D. Ga. 1991) ("Pre-petition

agreements regarding relief from stay are enforceable in bankruptcy."); In re Citadel Properties,

Inc., 86 B.R. 275, 276 (Bankr. M.D. Fla. 1988) (holding that "the terms of the prepetition

stipulation are binding upon the parties and that sufficient cause exists to lift the stay pursuant to

section 362(d)(1)").

6. The Club Tower court thought that an agreement for relief from stay was merely the

waiver of a "single benefit" of the bankruptcy process and allowed the debtor to retain "core rights"

like the entitlement to a discharge, to assume or reject executory contracts, and to pursue

preferences and fraudulent conveyances. 138 B.R. at 3 1 1

.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 899

were filed in "bad faith" and should be dismissed regardless of any waiver.
7

The majority of recent cases take a middle ground. These cases hold that the

waiver is neither enforceable per se nor unenforceable. The courts start from the

premise that a contractual waiver is a primary factor in determining whether

relief from stay may be granted but go on to determine whether other grounds,
such as bad faith or lack of possibility of reorganization, justify relief:

[T]he waiver is a primary element to be considered in determining if

cause exists for relief from the automatic stay under §362(d)(l) .... The

burden is on the opposing parties to demonstrate that it should not be

enforced . . . The court will consider other factors, such as the benefit
which the debtor received for the workout agreement as a whole; the

extent to which the creditor waived rights or would be otherwise
prejudiced if the waiver is not enforced; the effect of the enforcement on

other creditors; and, of course, whether there appears to be a likelihood

of a successful reorganization.
8

In In re Pease? an example ofthe third group of cases, it was determined that
a pre-petition waiver ofthe benefits ofthe stay is unenforceable per se for several

reasons. First, the pre-petition debtor is an entity separate and distinct from the

debtor in possession without fiduciary duties to creditors and therefore lacks the

capacity to act on behalf of the debtor in possession.
10 As a result, the debtor

cannot bind the estate. Second, enforcement of the waiver would run afoul of

section 363(1) of the Bankruptcy Code, which allows the debtor to use property

of the estate despite a contractual provision that terminates or limits the debtor's

rights if the debtor is insolvent or petitions for bankruptcy relief.
11

Third,

enforcement ofthe waiver would allow the single creditor and the debtor to opt

out of the "collective" remedy of bankruptcy to the detriment of the debtor's

other creditors.
12

Thus, while there has been some movement toward allowing waivers of
bankruptcy privileges, considerable opposition to enforcing such waivers still

remains.

7. For example, in In re Club Tower, the court made an alternative finding that, since the

debtor had only a single asset, no employees, and only a few "de minimis" unsecured claims and

had enjoyed the benefits of a pre-petition forbearance agreement, the movant was also entitled to

relief because the debtor's case was filed in bad faith. Id. In In re Citadel Properties, the debtor

had unsuccessfully sought pre-petition refinancing, had only one asset, had no employees, and

sought bankruptcy relief one hour before a scheduled foreclosure sale. 86 B.R. at 276.

8. In re Powers, 170 B.R. 480, 484 (Bankr. D. Mass. 1994); see also In re Jenkins Court

Assocs., L P., 181 B.R. 33 (Bankr. E.D. Pa. 1995); In re Darrell Creek Assocs., L.P., 187 B.R. 998

(Bankr. D.S.C. 1995) (citing Powers with approval).

9. 195 B.R. 431 (Bankr. D. Neb. 1996); see also In re Sky Group Int'l, Inc., 108 B.R. 86

(Bankr. W.D. Pa. 1989).

10. In re Pease, 195 B.R. at 433.

11. Id. at 434.

12. Id.



900 INDIANA LAW REVIEW [Vol. 31:897

B. The Mythology ofthe Present Case Law

The present law holding that waivers of bankruptcy privileges are not
enforceable or are only "factors" to consider use various supporting arguments.

Upon careful analysis, each of these arguments is myth.
1. Myth No. 1: Waivers ofBankruptcy Privileges Violate the Constitution.—

A number of courts have held that waivers of bankruptcy privileges, usually the
privilege of filing bankruptcy but sometimes other bankruptcy privileges, violate

a constitutional right to file bankruptcy.
13

This is the most flagrantly false of the myths. The Constitution states that
"Congress shall have the Power to . . . establish . . . uniform Laws on the subject
of Bankruptcies throughout the United States."

14
Not only is there no

constitutional right to file bankruptcy, but Congress need not even create a

bankruptcy law. In fact, there was (with three short unsuccessful exceptions) no
bankruptcy law for more than the first 100 years of our history.15 Thus, any
"right" to file bankruptcy is statutory, not constitutional.

At least one case related to this issue leaned in a more sensible direction than
those cases espousing the existence of a constitutional right to file bankruptcy.

United States v. Royal Business Funds Corp}
6
recognized that the privilege of

filing bankruptcy has limits. While the case stated that it did not intend to

change the rule that a person may not waive the ability to file a bankruptcy case,
it held that a debtor may, in connection with a federal receivership, enter into a
stipulation that effectively limits the debtor's ability to file a bankruptcy case.

17

The case provided apparent recognition that filing bankruptcy is not a
constitutional right. Perhaps this suggests movement in a direction more in
keeping with the legal realities.

2. Myth No. 2: Waivers ofBankruptcy Privileges Violate Provisions ofthe
Bankruptcy Code.—

a. Ipso facto clauses and the like.—The courts also wrestle with specific
provisions of the Bankruptcy Code in analyzing bankruptcy privilege waivers.
For instance, sections 541(c), 363(1), and 365(e) essentially say that a property

interest becomes part of the debtor's estate which the debtor may use (or, if the
property interest is an executory contract or lease, may assume) notwithstanding
a contractual provision that purports to impair the debtor's rights in such property

13. Merritt v. Mt. Forest Fur Farms, 103 F.2d 69 (6th Cir. 1939); In re Pine Tree Feed Co.,

1 12 F. Supp. 124 (D. Me. 1953); In re Citadel Properties, Inc., 86 B.R. at 276 (waiver of the ability

to file bankruptcy violates the Constitution but not waiver of the automatic stay); In re Adana

Mortgage Bankers, Inc., 12 B.R. 989 (Bankr. N.D. Ga. 1980).

14. U.S. Const, art. I, § 8.

15. See generally CHARLES WARREN, BANKRUPTCY IN UNITED STATES HISTORY 60-85

(1935); 1 James Wm. Moore etal., Collier On Bankruptcy ^ 0.04 (14th ed. 1974).
16. 724F.2dl2(2dCir. 1983).

17. Id. at 15-16.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 90

1

if it files bankruptcy or becomes insolvent.
18 Some courts, like the court in

Pease, have expressed concern that the enforcement of waivers of bankruptcy

privileges may run afoul of these statutory provisions. 19

While these provisions are of some relevance to the waiver issue, none of
them can reasonably be interpreted to prohibit waivers of bankruptcy privileges

in any significant number of circumstances. One clear fact is that no statutory
provision exists that gives anyone a "right" to file bankruptcy.

20
Certain sorts of

entities, like estates and trusts, cannot file at all.
21

Moreover, the courts have the

ability to abstain from hearing any case.
22

Therefore, there is no statutory basis

for claiming an absolute right to file bankruptcy.

It is also important not to get swept away with the provisions briefly
described above that restrict the enforceability of ipso facto clauses, since these

provisions are narrow in scope. Section 541(c) states that a property interest

becomes part ofthe debtor's estate notwithstanding a contractual provision that
purports to impair the debtor's property rights if it files bankruptcy or becomes
insolvent.

23
All this does is cause property to become property of the estate

notwithstanding a clause purporting to state otherwise. Section 541(c) does not

affect waivers of bankruptcy privileges, since these waivers do not terminate or

change the debtor's state law property rights upon filing. It does not prevent
waiver ofthe privilege of a discharge or the automatic stay or the like. Property

of the debtor is property of the estate whether or not the stay applies to it. Of
course, it may not be property of the estate for long, but property may quickly
cease to be property ofthe estate for many reasons, not just because of a waiver
of the stay. If a stay waiver is given effect, the property remains property of the

estate until it is transferred, and the debtor will still have all rights afforded under

state law to reinstate its defaulted obligation, to contest the creditor's right to

foreclose, and to limit the estate's monetary obligation following foreclosure.

Section 363(1), which provides that the debtor may use, sell, or lease property
ofthe estate notwithstanding an ipso facto clause,

24
also does not affect waivers

of bankruptcy privileges, because such waivers do not limit the estate's right to

use, sell or lease property. So long as the property in question remains property

of the estate, the estate is free to use, sell or lease it.

One could argue that the ability to use property is ephemeral if stay waivers
are enforced. If such waivers are enforced, the ability to use property is a

fleeting privilege that quickly vanishes upon foreclosure and sale. There are

several responses to this argument. It is neither required nor intended that a

debtor have a right to use property under section 363 for some specified period

18. 11 U.S.C. §§ 541(c), 363(1) & 365(e) (1994).
19. In re Pease, 195 B.R. at 434.

20. See Edward S. Adams & James L. Baillie, A Privatization Solution to the Legitimacy
ofPrepetition Waivers ofthe Automatic Stay, 38 ARIZ. L. REV. 1, 26-27 (1996).

21. See 11 U.S.C. §§ 101(9) & (41), 109(a) (1994).
22. Id. § 305.

23. Id. § 541(c).

24. Id. § 363(1).



902 INDIANA LAW REVIEW [Vol. 3 1 :897

of time. The estate's ability to use property may be terminated due to failure to
comply with government regulations, or failure to maintain insurance or because
a right to relief from stay otherwise exists, as in a case where the debtor
voluntarily agreed to borrow more than the collateral for the debt is worth. If a
debtor does any ofthese things, the result is effectively the same as a stay waiver.
No one suggests that these events violate section 363. Note as well that even if
one accepts the argument that stay waivers violate section 363(1), this does not

impact other bankruptcy privilege waivers, like waiver of the discharge or of the

ability to file bankruptcy itself.

Section 365(e) provides that an executory contract or lease may not be
terminated or have any of its provisions terminated or modified as a result of a

clause triggered on the filing of bankruptcy.
25

This provision applies only to

executory contracts and leases.
26 Most of the contracts in which one finds

waivers of privileges in bankruptcy are loan agreements that are neither

executory contracts nor leases. Thus, to the extent that this provision does have

an impact on waivers of bankruptcy privileges, it is pertinent to only a very small

number of such cases. Waiver of a bankruptcy privilege, like the stay or
discharge or, for that matter, the ability to file, does not terminate an executory

contract or lease and does not terminate or modify any provision of such a

contract or lease. Even in the case of a stay waiver, such a waiver does not
terminate the contract or modify its provisions. A stay waiver simply allows the
nondebtor party to proceed to terminate the contract under otherwise applicable

law, if there are grounds for termination. As a result, even if such a clause were
found in an executory contract or lease, the clause would not violate section

365(e) since it would not itself terminate or modify the contract or lease or any
provision of the contract or lease.

We think that some arguments can be drawn from the statute to support
enforcement of bankruptcy privilege waivers. Congress has said that certain

contract provisions—such as those that might reduce a debtor's state law
property rights upon filing—are not enforceable in a bankruptcy.27 Congress has
not said that stay or other waivers are unenforceable. That Congress has

regulated certain types of contractual provisions and has ignored waivers of

bankruptcy privileges weighs against a rule prohibiting enforcement of waivers.

Congress has also shown that it does not regard the stay as inviolate. Section

362(c)(8) expressly says that the stay will not prevent the Secretary of Housing

and Urban Development from enforcing an insured mortgage against 5 or more
dwelling units.

28
Sections 365(c)(12) & (13) state that, ninety days after the case

is filed, the stay will no longer prevent the Secretary of Commerce or
Transportation from enforcing a ship mortgage under the Merchant Marine Act.

29

25. Id. § 365(e). Note that there is a similar provision in § 365(f) that allows assignment

of an executory contract notwithstanding an ipso facto clause. Id. § 365(f).

26. Id. § 365(e).

27. See, e.g., id. §§ 541(c), 363(1) & 365(e) (previously discussed).
28. Id. § 362(c)(8).

29. Id. §365(c)(12)&tl3).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 903

Further, recently enacted section 362(d)(3) says that the stay against "single asset

real estate" terminates ninety days after the case is filed, unless the debtor has

filed a plan with a reasonable possibility of confirmation or has begun payments

to assure its lender a fair return on the value of its collateral.
30

These exceptions,

among others, show that Congress has recognized that the stay may terminate in
numerous circumstances without the need for any showing of cause. Thus,
Congress has recognized that the privileges of bankruptcy are not inviolate and

are subject to various limitations. One can argue that freely negotiated waivers
of bankruptcy privileges should be one of these limitations.

Thus, the relevant statutory provisions do not typically apply to the sorts of

situations in which one finds waivers of privileges in bankruptcy cases and are

generally not an impediment to waiver of bankruptcy privileges. In addition, the

actions of Congress in certain areas can be interpreted as weighing against

prohibitions on waivers of bankruptcy privileges.

b. The automatic stayprovisions.—It has been argued, at least in the context
of the automatic stay, that the plain language of the Bankruptcy Code prohibits
waivers of bankruptcy privileges. Professor Daniel Bogart has urged, based in

part on the kind of "plain meaning" statutory analysis proposed by one of the

present authors,
31

that the plain meaning of section 362 prohibits contractual stay

waivers.
32

Bogart first notes that section 362(a) makes the stay applicable to all
entities.

33
There are no exceptions of significance to waivers of the stay.

34
Next,

Bogart shows that the only relief from a stay provision that might be a basis for

enforcement of waivers of the stay is section 362(d)(1).
35

This subsection states

that relief from the stay may be granted for "cause."36 The issue then becomes,
according to Bogart, whether a waiver of the stay can constitute "cause" under

section 362(d)(1).
37

30. Id. § 362(d)(3).

3 1

.

See Thomas G. Kelch, An Apologyfor Plain Meaning Interpretation ofthe Bankruptcy

Code, 10 Bankr. Dev. J. 289 (1994).

32. Daniel B. Bogart, Games Lawyers Play: Waivers ofthe Automatic Stay in Bankruptcy

and the Single Asset Loan Workout, 43 UCLA L. REV. 1117 (1996).
33. Id. at 1150.

34. Id.

35. Id. at 1150-53.

36. 1 1 U.S.C. § 362(d)(1) (1994). The entire argument here is based on the idea that

enforcement of any contractual waiver of the stay must be analyzed simply as a ground for relief

from stay; that is, stay waivers cannot be self executing. This is supported by the case law. See

Baxter, supra note 2, at 591; Adams & Baillie, supra note 20, at 10; In re Psychotherapy &
Counseling Ctr., Inc., 195 B.R. 522, 534 (Bankr. D.C. 1996); In re Powers, 170 B.R. at 483; Farm

Credit of Central Florida, ACA v. Polk, 160 B.R. 870, 873-74 (M.D. Fla. 1993); In re Sky Group
Int'l, Inc., 108 B.R. at 88. However, the thesis of this Article is to the contrary. It is our view that

such waivers should be enforceable apart from the provisions of section 362(d). In any event, for

the purpose of this discussion, we will assume the non-self executing nature of stay waivers.

37. Bogart, supra note 32, at 1 150-53.



904 INDIANA LAW REVIEW [Vol. 31:897

In plain meaning analysis, the issues are what are the meanings of "waiver"
and "cause," and can "waiver" be something that falls within the meaning of
"cause." In answering these questions, Bogart finds that the common legal
meaning of "waiver" requires a consensual act.

38
Bogart then argues that "cause"

does not include consensual or voluntary acts. One foundation for this argument
is that the only type of "cause" actually described in the Bankruptcy Code, the

lack of adequate protection, is not characterized by voluntary acts.
39

Moreover,

Bogart contends that under section 1104 of the Bankruptcy Code, another

provision that uses the term "cause," the term is not intended to apply to

consensual pre-petition actions.
40

Further, the term "cause" and the way it has
been interpreted imply that an independent "inquiry" into cause is required by the

Bankruptcy Code.
41

This too suggests that cause does not include consensual

arrangements. Based on these premises, along with reference to the legal and

common definitions of cause, Bogart concludes that "cause" as used in section
362(d)(1) is meant to refer to nonconsensual circumstances, not to agreements.
Waiver is consensual; cause requires something nonconsensual. Therefore,
"waiver" cannot be "cause."

42

While Bogart has done an excellent analysis of the language of section 362,
we disagree in part with this analysis. While it is true that "waiver" is a
consensual act, there is nothing in the Bankruptcy Code or, for that matter, in
accepted legal or lay use of the term "cause" that suggests that cause cannot be

consensual. In fact, the legal definition of cause quoted in a footnote by Bogart

makes clear that the voluntary or consensual nature of a circumstance has nothing
to do with whether this circumstance constitutes "cause." "Cause" is defined as:

Each separate antecedent of an event. Something that precedes and
brings about an effect or result. A reason for an action or condition. A
ground for a legal action. An agent that brings something about. That
which in some manner is accountable for a condition that brings about
an event or that produces a cause for the resultant action or state.

43

Nothing in this definition suggests that a consensual act cannot be a "cause." All

that is necessary to be a cause is to be an effective antecedent to an event; a

voluntary action can be an effective antecedent to an event. Further, the legal

and lay dictionary definitions of cause make clear that voluntary acts can be
causes when they state that a cause can be "an agent that brings something
about."

44 An agent bringing something about requires a volitional action.
It is also not so clear as Bogart contends that a lack of adequate protection

cannot be a voluntary act. If a debtor fails to insure and properly care for

38. Mat 1151-52.
39. Id. at 1152-54.

40. Id. at 1153-54.

41. Id.

42. Id. at 1152-53.

43. Black's Law Dictionary 221 (6th ed. 1990).
44. Webster's Ninth Collegiate Dictionary 217(1 989).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 905

property either pre- or post-petition, this failure may constitute a lack of adequate
protection. In what sense is this not consensual or voluntary? Further,
agreements for relief from stay are frequently made post petition. Often, the
court makes no "independent inquiry" into the propriety of such agreements. The
fact is that absent objection, the agreement itself is considered cause for relief

from stay. Note also that the Bankruptcy Code provides no basis for
distinguishing pre-petition from post-petition agreements relating to the stay.

"Cause" is not bifurcated into pre- and post-filing concepts. Since it is

commonly accepted that voluntary post-petition agreements can constitute
grounds for relief from stay and that there is no statutory basis for distinguishing

pre- and post-petition agreements of this kind, pre-petition waiver agreements

should, it seems, be given at least the same effect as post-petition agreements.
Nothing about the term cause, either as used in the Bankruptcy Code, in the

law generally or in common usage, suggests that a cause may not be a voluntary
waiver of a privilege.

45
Thus, nothing in the Bankruptcy Code precludes

grounding relief from stay on a pre-petition agreement to waive the privilege of

the stay.

3. Myth No. 3: There Are Strong Public Policy Reasons Against
Enforcement of Waivers ofBankruptcy Privileges.—The case law asserting that
bankruptcy privileges may not be waived or may be waived only in extraordinary
circumstances tends to rely on the idea that such clauses violate "public policy."

Many things have been identified as public policies relevant to this issue, but we
will concentrate only on what are the most prevalent and most plausible.

It is sometimes stated that the policy of promoting a "fresh start" causes

waivers of bankruptcy privileges to be unenforceable.
46 The policy of a "fresh

start" is, however, meant to apply only to individuals, not juridical entities. The
force of this policy is nonexistent in the corporate and partnership worlds.

47

Therefore, this policy is of limited application and is not of consequence in most

cases where one sees waivers of bankruptcy privileges.

Also a policy favoring reorganizations exists that militates against waivers.
48

This policy would apply to juridical entities. It would not apply when an entity
files a liquidation case. Note that one can see this policy as cutting in more than

45. Note that probably the most common criticism of plain meaning analysis is that there

is no such thing as "plain meaning" and reasonable people can always disagree about the meaning

of words. It will now be argued that, by criticizing Bogart's position, we have proved this point,

contrary to Kelch's "Plain Meaning" article. Kelch, supra note 3 1 . While the sting of this criticism

is felt, we believe that there is clear plain meaning in the terms involved in this argument. We
believe that Bogart's analysis reads too much into the Bankruptcy Code provisions and the

definitions of "cause" he uses. In any event, we leave this issue for the reader to decide.

46. In re Adana Mortgage Bankers, Inc., 12 B.R. 989, 1009 (Bankr. N.D. Ga. 1980); see

also Marshall E. Tracht, Contractual Bankruptcy Waivers: Reconciling Theory, Practice and Law,

82 Cornell L. Rev. 301 (1997); Adams & Baillie, supra note 20.
47. Tracht, supra note 46, at 307.

48. See Bruce White, The Enforceability ofPre-Petition Waivers ofthe Automatic Stay, Am.

Bankr. Inst. J., Jan. 15, 1996, at 26.



906 INDIANA LAW REVIEW [Vol. 31:897

one direction. While refusing to enforce waivers may promote reorganizations
in the context of bankruptcy cases, it may discourage ultimate rehabilitation of
many entities by discouraging workouts, which are a cheaper and probably more
effective means of rehabilitation. Waivers may be an effective and necessary
part of many rehabilitation efforts. In any event, as will be shown, even where
the promotion of reorganization policy applies, there are countervailing policies.

A policy favoring fair and equal distribution of assets to creditors is
sometimes said to preclude waivers of bankruptcy privileges.

49
While a waiver

ofthe ability to file bankruptcy may cause problems of fair and equal distribution
of assets to creditors of equal priority (even this is questionable since creditors

could file an involuntary case regardless of any waiver of privileges by the

debtor), this is not the case regarding waiver of the stay or of a discharge. In

either of these latter cases, the assets of the debtor (including any equity in

property to be sold by a foreclosing creditor not subject to the stay) are still

within the control of the bankruptcy court and are distributed according to the

priority scheme of section 507
50—presumably equally and fairly.

Even if one accepts these policies as weighing against enforcement of
waivers, there are countervailing and opposing policies. For example, one policy

oft spoken of favors workout agreements where these waivers frequently occur.
51

Another idea is that the property and other rights of parties in bankruptcy are

generally determined with reference to state law.
52 As a result, one can argue that

contractual waivers, like other property attributes of the estate, should be

analyzed simply as a matter of state law. Therefore, if a waiver is enforceable

under state contract law, it should be enforced in bankruptcy. In a similar vein,

there is the longstanding policy in Anglo-American jurisprudence of freedom of

contract that is promoted by enforcing waivers.
53 Economic efficiency policies

also support enforcement of waivers at least in certain circumstances.
54

The point here is that there are policies that weigh on each side of the issue

of whether waivers of bankruptcy privileges should be enforced. The Supreme

Court has stated that public policy concerns cannot be used to invalidate

49. In re Sky Group Int'l, Inc., 108 B.R. 86, 88 (Bankr. W.D. Pa. 1989); see Rafeal Efrat,

The Casefor Limited Enforceability ofa Pre-Petition Waiver ofthe Automatic Stay, 32 San DlEGO

L. REV. 1133 (1995); William Basin, Why Courts Should Refuse to Enforce Pre-Petition

Agreements that Waive Bankruptcy 's Automatic Stay Provision, 28 Ind. L. REV. 1 (1994). Even

this is questionable since creditors could file an involuntary case regardless of any waiver of

privileges by the debtor. These include any equity in property to be sold by a foreclosing creditor

not subject to the stay.

50. 11 U.S.C. § 507 (1994).

5 1

.

See Basin, supra note 49, at 6; Adams & Baillie, supra note 20, at 1 1

.

52. Butner v. United States, 440 U.S. 48, 54-55 (1979); Taylor v. Voss, 271 U.S. 176

(1926); Connolly v. Baum, 22 F.3d 1014, 1017 (10th Cir. 1994); Boyd v. United States, 1 1 F.3d

59, 60-61 (5th Cir.), cert, denied, Boyd v. Galsby, 511 U.S. 1 107 (1994); see also THOMAS G.

Kelch & Michael K. Slattery, Real Property Issues in Bankruptcy § 2.02[2] (1997).
53. See Adams & Baillie, supra note 20, at 26-27.
54. See Tracht, supra note 46.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 907

contractual provisions, unless there are policies in existing laws and precedents

that demonstrate a "well defined and dominant policy" against contract

enforcement.
55

Given the opposing policies and conflicting precedent, as well

as the Supreme Court's restrictive stand on when private agreements can be
found unenforceable due to public policy concerns, it does not seem that there

is sufficient policy horsepower to overcome contractual waivers on policy

grounds.
56

4. Myth No. 4: Waivers of Bankruptcy Privileges are Tantamount to
Waiving the Ability to File Bankruptcy.—The courts generally start from the
premise that a debtor's agreement not to file bankruptcy should not be enforced.

A number ofreported cases cite Fallick v. Kehr57 for this rule. Courts then argue
that, if waivers are enforced, every contract will be drafted to waive a debtor's

rights in bankruptcy. In re Adana Mortgage Bankers, Inc.,
5
* an early Bankruptcy

Code case, stated:

If an advance waiver of the right to file a bankruptcy case were

enforceable, the availability of Bankruptcy Code benefits could be
nullified in most commercial cases merely by the lender's inclusion of

a waiver clause in the standard form of contract it requires of the

borrower. The lending community, including federal agencies, through

the provisions of their forms of credit instruments, would determine the

extent, if any, of access to the bankruptcy courts rather than the statute

itself.
59

Judge Norton's opinion in Adana did not mince words on this question. The
debtor "had an inviolate right of access to the courts of bankruptcy" and the

consequences of the waiver of that right "are almost unthinkable."
60

Such a

waiver, "even a bargained for and knowledgeable one," is void.
61

In re Madison,
62

another recent case citing Fallick, accepted the same
reasoning:

Enforcement of even an agreement which only temporarily waives such

rights would appear sufficient to us to undermine the Congressionally-

expressed public policy underpinning the Bankruptcy Code .... As a
matter of policy, it has been pointed out that, if agreements prohibiting

55. United Paperworkers v. Misco, 484 U.S. 29, 43-44 (1987).

56. The Supreme Court precedent on this issue, as well as the Court's view of the

significance of public policy arguments, will be discussed in detail in Part III.B.2, infra. It is

sufficient now to note that there are difficulties with the policy arguments advanced against waivers

and that there are substantial countervailing policies.

57. 369 F.2d 899 (2d Cir. 1966).

58. 12 B.R. 989 (Bankr. N.D. Ga. 1980).

59. Id. at 1009.

60. Id.

61. Id.

62. 184 B.R. 686 (Bankr. E.D. Pa. 1985).



908 INDIANA LAW REVIEW [Vol. 3 1 :897

bankruptcies were given force, the Code could be nullified in the vast
majority of debts arising out of contracts .... Even bargained-for and
knowing waivers of the right to seek protection in bankruptcy must be
deemed void.

63

This is a particularly strong statement considering the equities of the Madison
case. The creditor was seeking to enforce an agreement in the debtor's fourth
chapter 13 case that if an anticipated fifth filing were dismissed—an event that
came to pass—the debtor would not file a sixth case.

Ifthe idea that a debtor cannot waive the right to file bankruptcy is accepted,

it is thought to be a close question whether agreements for relief from stay have

the same effect. For that reason, some courts have held that stay waivers draw
particular scrutiny in single asset cases. If enforced, it is said the practical

consequences are the same as a prohibition against filing. As the court in In re
Jenkins Court Associates

6* explained:

Technically speaking, a waiver of the protection of the automatic stay

can be distinguished from a blanket prohibition against a bankruptcy

filing. In this context, however, it may be a distinction without a
meaningful difference. In single asset cases, public policy behind the

stay may frequently outweigh policy which favors encouraging out of
court restructuring and settlements.

65

But other courts have disagreed:

[DJebtor still retains the benefits of the automatic stay as to the other

creditors, as well as all the other benefits and protections provided by the

Bankruptcy Code including but not limited to the right to conduct an
orderly liquidation, discharge debt or pay it back on different terms,

assume or reject executory contracts, sell property free and clear of liens,

and pursue preferences and fraudulent conveyances. Debtor still retains

the core rights under the Bankruptcy Code and has the ability to make a
"fresh start." Therefore, enforcing Debtor's agreement does not violate

the public policy concerns that agreements which prohibit a borrower

from filing for bankruptcy violate.
66

This seems the better reasoned view. Bankruptcy law provides a number of
privileges. Waiver of any one of these privileges does not amount to waiver of
all of them. While it is true that some privileges are of more value to some
debtors than others, this does not affect the existence and general value of all of

the privileges.

As is shown in the development of the main thesis of this Article, whether

63. Id. at 690-91.

64. 181 B.R. 33 (Bankr. E.D. Pa. 1995).

65. Id. at 36.

66. In re Club Tower, L.P., 138 B.R. 307, 311-12 (Bankr. W.D. Ga. 1991); accord In re

Atrium High Point Ltd. Partnership, 189 B.R. 599, 607 (Bankr. N.C. 1995).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 909

a stay waiver is tantamount to waiving the right to file bankruptcy is irrelevant

since, when properly analyzed, waivers of the ability to file bankruptcy should
be enforceable.

5. Myth No. 5: Waivers ofBankruptcy Privileges Violate the Rights ofThird
Parties.—It is not infrequently argued that waivers of bankruptcy privileges
somehow impinge upon the rights of third parties.67 This argument is generally
directed at waivers of the stay. Underlying this argument is the idea that
somehow creditors that are not parties to a waiver agreement have some property
or other interest in the debtor's ability to file bankruptcy.

For instance, In re Pease™ holds that stay waivers are per se unenforceable
because, among other reasons, enforcement of the waiver would allow a single
creditor and the debtor to opt out ofthe "collective" remedy of bankruptcy to the
detriment of the debtor's other creditors. The court in In re Sky Group
International, Inc.

69
expressed the same concerns:

The contention that this "waiver" is enforceable and self-executing
is without merit ....

The legislative history makes clear that the automatic stay has the
dual purpose of protecting the debtor and all creditors alike ....

To grant a creditor relieffrom stay simply because the debtor elected
to waive the protection afforded the debtor by the automatic stay ignores
the fact that it also is designed to protect all creditors and to treat them
equally. The orderly liquidation procedure contemplated by the Code
would be placed in jeopardy, especially where (as here) none of the
creditors who brought the involuntary petition was a party to the
Agreement in which the debtor allegedly waived its right to the
automatic stay.

70

Several appellate decisions have said in dicta that the stay cannot be "waived"

because it is intended to benefit other creditors as well as the debtor, and the

debtor is not free to waive the rights of these creditors. Based on this kind of
analysis of waiver of the stay, some courts have held that a stay waiver should
bind the debtor but should not prevent the debtor's third party creditors from

contesting its enforcement: "These agreements do not oust this Court's

67. Commerzanstalt v. Telewide Sys., Inc., 790 F.2d 206, 207 (2d Cir. 1986); Maritime

Elec. Co. v. United Jersey Bank, 959 F.2d 1 194, 1204 (3d Cir. 1991); In re Pease, 195 B.R. 431

(Bankr. D. Neb. 1996); In re Sky Group Int'l, Inc., 108 B.R. 86 (Bankr. W.D. Pa. 1989).

68. In re Pease, 195 B.R. at 431.

69. 108 B.R. 86 (Bankr. W.D. Pa. 1989).

70. Id. at 88-89 (emphasis in original).



910 INDIANA LAW REVIEW [Vol. 31:897

jurisdiction to hear objections to stay relief filed by other parties in interest. It

simply means that this Court will give no weight to a Debtor's objection as this
conflicts with and is in derogation of the previous agreement."

71

At first blush, the argument that stay waivers violate third party rights has
some appeal. It breaks down on closer analysis. The argument incorrectly
assumes that before the debtor files bankruptcy, all of its creditors have some
legally protected expectation or property right in the potential future benefits of

the debtor's automatic stay. As a practical matter, we think the argument grossly
exaggerates creditors' actual expectations. It is very unlikely that creditors

actually rely on the potential benefit of the stay when they extend credit. A well-
counseled unsecured creditor's expectation is that an encumbered asset can be
foreclosed out and that the foreclosing lender will acquire the asset by a credit

bid. Junior secured creditors further assume that their interests can be foreclosed

out. They are also able to, and routinely do, research public records before they
lend and read senior encumbrances to look for stay waivers.

The argument also exaggerates the impairment of other creditors' legal
positions. Suppose that a stay waiver is enforced. Other creditors' substantive

rights under state law are not changed by this waiver. If the unsecured creditor

wants to protect its claim to any equity in a property being foreclosed upon, it can

pay off the lender and subrogate to the lender's claim. It can also protect its

interest by advancing funds to reinstate the debt or by paying off the debt and

foreclosing itself. Other creditors can also exercise their own rights under the
bankruptcy law. If the property really has equity and the junior secured creditors

are cash poor, they can file their own cases and might be able to stay the senior's
foreclosure.

The legislative history of section 362 does support the idea that the stay
protects not only the debtor but also the debtor's creditors. But when Congress
said this, what it had in mind was assuring a ratable distribution among the
debtor's unsecured creditors:

The automatic stay is one of the fundamental debtor protections
provided by the bankruptcy laws. It gives the debtor a breathing spell

from his creditors.

The automatic stay also provides creditor protection. Without it,
certain creditors would be able to pursue their own remedies against the
debtor's property. Those who acted first would obtain payment of their
claims in preference to and to the detriment of other creditors . . . .

72

The enforcement of pre-bankruptcy agreements to allow secured creditors to

exercise their contractual remedies does not run afoul of this policy. Secured

71. In re Cheeks, 1 67 B.R. 8 1 7, 8 1 9 (Bankr. D. S.C. 1 994); accord In re Atrium High Point

Ltd. Partnership, 189 B.R. at 607.

72. H.R. Rep. No. 95-595, 95th Cong. 1 st Sess., at 340 ( 1 977).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 9 1

1

creditors have a contractual right, which is honored in the bankruptcy process,

to be paid in full from the proceeds of their collateral before unsecured creditors

get a penny. The above-quoted policy is meant to prevent a race to the
courthouse by unsecured creditors resulting in piecemeal dismemberment of the
unencumbered portion of the estate.

The current case law transports this legislative history into a completely
different context to suggest that the stay should protect some sort of residual right
of junior secured and unsecured creditors in a debtor's encumbered assets.
Nothing in the legislative history supports that interpretation.

When looked at closely, it is bizarre to suggest that creditors have some
proprietary or other interest in a debtor's ability to file a bankruptcy petition and
get the benefit of the automatic stay. A debtor could obviously refuse to file for
bankruptcy relief even if it was in the debtor's best interest to do so, and a
creditor does not and should not have anything to say about this. Moreover,

Congress specifically provided a right to file an involuntary petition to provide

some measure of protection for creditors in a situation where a debtor's assets
may be inequitably dismembered.73 It is, then, an unwarranted claim that
creditors have an interest in a debtor's ability to file bankruptcy or any of the

privileges attendant thereto.

6. Myth No. 6: Waivers Give Unconscionable Advantage to Creditors.—
Creditor leverage is a real concern for the courts. The hidden premise in many
current cases is that creditors have superior bargaining power and should not be
permitted to use it to their advantage against debtors. From this assumption, the
courts reason that, if waivers of bankruptcy privileges are enforced, they will

appear in every consumer credit and loan document, and no one will receive the
benefits of bankruptcy. It has been said, for example: "To rule otherwise would
encourage lenders to adopt standardized waiver terms in loan agreements. This

would substantially undercut the relief Congress intended to provide debtors
under the Bankruptcy Code."

74

Why is this assumption made? The assumption is not supported by evidence,
anecdotal or otherwise. Given the expanded lending markets, new types of
lending programs, and greater competition in lending that have arisen in the past

twenty years, is it not at least as likely that enforceable waivers of bankruptcy

privileges would be mere bargaining chips in debtor-lender negotiations?
The traditional thinking is premised on a notion that lenders have so great a

bargaining advantage that they can dictate all of the important terms of a loan

transaction. This assumption is likely not true for commercial lending.

Generally, parties to commercial lending transactions truly bargain over terms of

loan agreements. The claimed lender bargaining advantage may also not be true
for residential mortgage and other types of lending. In the case of residential

mortgage lending, the terms of mortgage loans are typically set out in uniform

documents prepared by secondary market loan buyers such as the Federal

National Mortgage Association, who, for policy reasons, might not push for stay

73. 11 U.S.C § 303 (1994).

74. In re Pease, 195 B.R. 431, 435 (Bankr. D. Neb. 1996).



912 INDIANA LAW REVIEW [Vol. 31:897

waivers. Mortgage lenders might simply require the waiver of less credit worthy
buyers or demand a higher interest rate or more loan points for loans without the
waiver. Federal legislation designed to assure access to consumer credit, such
as the Community Reinvestment Act75 and the Fair Housing Act,76 doubtlessly
has improved borrowers' relative leverage. Further, the growth of non-bank
financial institutions that will lend to less credit worthy borrowers reduces the

bargaining strength of lenders. However, in the final analysis, no one really
knows whether waiver clauses would become the norm. The premise of the
current case law that such clauses would become universal is just a guess by the
courts.

On the other side of the equation are a number of possible benefits of
allowing waivers of bankruptcy privileges. Debtors who choose to take the risk
of waiving their rights may be able to obtain better credit terms, including lower
points and reduced interest rates, in return for agreeing to waive privileges in the

event of bankruptcy. These results may very well occur in both business and
consumer markets. Thus, the credit markets may simply absorb the reality of
enforceable waivers as a means of offering new and economically beneficial loan
programs. It should also be noted that there are mechanisms in contract law to
protect against terms that result from unequal bargaining power. Where there is
an imposition due to unequal bargaining power, the law pertaining to

unconscionability and adhesion contracts can protect borrowers.
77

In short, the assumption that there will be unconscionable results from

permitting waivers of bankruptcy privileges is just that—an assumption. It is
equally arguable that such results will not occur, and, in fact, that there will be

positive results from permitting enforcement of waivers of bankruptcy privileges

for both consumers and business debtors as a result of the creation of new
products in the credit markets.

C. The Sources ofthe Mythology

The courts have historically been solicitous ofborrowers' rights. We believe
this attitude, which is reflected in the current bankruptcy case law on waivers, is

a carry over from the depression. During the depression, the federal and state

legislatures enacted new legislation to protect the rights of necessitous
borrowers. The Frazier-Lemke Act amendments to the Bankruptcy Acf8 are an
important example. As originally enacted, the Act enabled a defaulting farm
mortgagor to stay foreclosure and retain possession for five years by payment of

the judicially-determined fair rental value of the farm, then purchase the farm for

its appraised value at the end ofthe stay period. The Supreme Court in Louisville

75. 12 U.S.C. §§ 2901-2907 (1994).

76. 42 U.S.C. §§ 3601-3631 (1994 & Supp. I 1995).
77. See infra Part IV.C.

78. The Frazier-Lemke Act, ch. 869, 48 Stat. 1289 (1934) (formerly codified at 1 1 U.S.C.

§ 203(s)) (repealed 1949) (adding Subsection (s) to section 75 of the Bankruptcy Act); see William

L. NOSTON, Jr., NORTON Bankr. L. & PROC. § 97:7 (2d ed. 1983 & Supp. 1998).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 9 1

3

Joint Stock Bank v. Radford
19
held that the Act violated the mortgagee's Fifth

Amendment protection against appropriation of property rights without just
compensation.

80
However, Wright v. Vinton Branch of the Mountain Trust

Bank,
81

the Court upheld the Act after it was amended on August 28, 1935, to
eliminate the mortgagor's right to redeem for appraised value, to reduce the

duration of the distressed mortgagor's stay to three years, and to authorize the

court to terminate the stay on certain conditions.
82

Some states adopted similar reforms. Home Building & Loan Ass'n v.
BlaisdelP

3
dealt with a Minnesota debtor relief statute that authorized courts to

extend a mortgagor's redemption period for so long as the court determined

"equitable and just" and authorized the mortgagor to retain possession in

exchange for payment of a judicially-determined fair rental value. An
institutional lender alleged that the statute ran afoul of the constitutional

prohibition of state laws that impair contractual obligations. The Supreme Court
upheld the statute as a reasonable legislative response to borrowers facing

desperate economic conditions:

An emergency existed in Minnesota which furnished a proper occasion
for the exercise of the reserved power of the state to protect the vital
interests of the community. The declarations of the existence of this
emergency by the legislature and by the Supreme Court of Minnesota
can not be regarded as a subterfuge or as lacking in adequate basis. . .

.

As the Supreme Court of Minnesota said, the economic emergency
which threatens "the loss of homes and lands which furnish those in
possession the necessary shelter and means of subsistence" was a "potent

cause" for the enactment of the statute.
84

States also enacted limitations on deficiency judgments following mortgage

foreclosures.
85

During the depression, the California legislature enacted a

comprehensive set of rules to limit the personal liability of a real property

mortgagor.
86 The California appellate courts consistently refused to enforce

79. 295 U.S. 555(1935).

80. Id. at 602.

81. 300 U.S. 440(1936).

82. Mat 460-61.
83. 290 U.S. 398(1933).

84. Id. at 444-45.

85. See Radford, 295 U.S. at 594 n.24 (identifying legislation then-recently enacted in

several states).

86. See Cal. Civ. PRO. §§ 580(a), (b) & (d), 726 (West 1998). Section 726 required that
a note secured by real property be enforced by foreclosure, section 580(d) and (b) prevented,

respectively, a money judgment for the unpaid balance of a real-property secured note following

non-judicial foreclosure of real property collateral and following any foreclosure of a purchase

money loan, and section 580(a) required that an action for a deficiency judgment be brought within

three months of foreclosure. Sections 726, 580(a), and (b) were enacted in 1933. Section 580(d)

was enacted in 1940.



914 INDIANA LAW REVIEW [Vol. 3 1 :897

advance waivers of these protections.
87

California Bank v. Stimson**providQS a
good example of the judicial mind set of the time:

We are persuaded that section 580a of the Code of Civil Procedure was
enacted by the Legislature for the purpose of relieving mortgage and

trust deed debtors. That the debtor class in California constitutes a

substantial portion of the state's population cannot be doubted. The
code section with which we are here concerned, like other statutes, was
adopted to promote the public welfare by shielding the debtor class from

oppression. It must therefore be construed as declarative of a public

policy of the state and cannot be waived by contract {Winklemen v.

Sides, 31 Cal.App.2d 387, 409 [88 P.2d 147]; Civ. Code, §§ 3268, 3513).
That the statute here in question is not a law intended for the benefit of

the person immediately concerned and can by him be waived (Civ. Code,

§ 3513), but was enacted for a public reason and as a declaration of
public policy is evidenced by the following statement of the Supreme
Court in the case of Hatch v. Security-First National Bank, 19 Cal.2d

254, 259 [120 P.2d 869]:

The evil which led to the enactment of this legislation became
pronounced during the recent period of economic depression

when creditors were frequently able to bid in the debtor's real
property at a nominal figure and also to hold the debtor

personally liable for a large proportion of the original debt.

The purpose and intendment of section 580a of the Code of Civil
Procedure were thus set forth in Reynolds v. Jensen, 14 Cal.App.3d 558,

559 [58 P.2d 687]: "These enactments were a part of a legislative plan

to lighten the burdens of trust deed debtors as evidenced by numerous

changes made in the laws at the same session of the legislature."

We are satisfied that section 580a of the Code of Civil Procedure is
a law adopted for a public reason and comes within the purview of
section 3513 of the Civil Code which provides that the provisions of
such a law cannot be waived by a private agreement. Any other holding
would manifestly result in a loss of much of the effectiveness of the
statute. Indeed, if the debtor could be permitted to waive the provisions

87. See Winklemen v. Sides, 88 P.2d 147 (Cal. Ct. App. 1939); California Bank v. Stimson,

201 P.2d 39, 41 (Cal. Ct. App. 1949); Freedland v. Greco, 289 P.2d 463 (Cal. Ct. App. 1955);

Valinda Builders, Inc. v. Bissner, 230 Cal. App. 2d 106, 1 12 (1964). Each of these courts refused

to enforce purported waivers of the debtor's rights under the California Code of Civil Procedure.

Cal. Civ. Pro. §§ 580(a), (b) & (d), 726 (West 1998).
88. 201 P.2d 39 (Cal. Ct. App. 1949).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 9 1

5

of the statute, the effect of the section could be entirely nullified.
89

This excerpt is also a good example ofhow a broadly-worded exception can
eclipse the general rule. The line between statutory rights "intended for the
benefit of the person immediately concerned" that can be waived and rights

"enacted for a public reason" that cannot is far from clear.
90

At least the court
was able to find some then-recent anecdotal support for its holding in the
legislative history.

91

We believe that the depression-era courts used the public policy wild card to
show paternalism towards borrowers in a time of emergency. The perception
was that borrowers lacked economic clout and needed protection from their
lenders. At that time, this attitude was supported both by the actual economic
conditions and by the actions ofthe state and federal legislatures. We think that
a lot of the current judicial aversion to stay waivers is tied to this sort ofthinking

and the precedent of the time, but this attitude lacks support in current economic

conditions or recent legislation.

With respect to stay waivers, the enforcement of such waivers does not
violate any long-standing and deep-rooted principle of the bankruptcy law.

Before the enactment of the Bankruptcy Reform Act of 1978, a bankruptcy filing
did not trigger an automatic stay of lien foreclosures. Typically, the courts

created stays through court orders. The Bankruptcy Act of 1898 provided a
limited automatic stay of certain actions in "straight" (liquidation) bankruptcies.

Section 1

1

92
and Rule of Bankruptcy Procedure 401 stayed the commencement

or continuation of an action to prove or enforce unsecured, dischargeable debts.

Section 814, which was part of Chapter XII (the Real Property Arrangement
Chapter of the Bankruptcy Act) provided that:

The court may, in addition to the relief provided by section 29 of this
title and elsewhere under this chapter, enjoin or stay until final decree

the commencement or continuation of suits against a debtor and may,
upon notice for cause shown, enjoin or stay until final decree any act or

the commencement or construction ofany proceeding to enforce any lien
upon any property of a debtor.

93

Stays under the Bankruptcy Act were not "automatic."

Recent legislation suggests that public policy has shifted away from borrower
protection. The Bankruptcy Reform Act of 199494 is the best example. The
Reform Act made several amendments to benefit creditors. Some of the more
important amendments narrow the scope of a debtor's protections under the

89. Mat 41.
90. Id. ; see also infra Part III.B. 1

.

9 1

.

California Bank, 20 1 P.2d at 4 1

.

92. 1 1 U.S.C. § 29 (repealed 1978).

93. Id. § 814.

94. Pub. L. No. 103-394, 108 Stat. 4106 (1994).



916 INDIANA LAW REVIEW [Vol. 31:897

automatic stay. It added a new ground for relief from stay,95 added exceptions
to the stay,

96
and expedited the resolution of motions for relief from stay.

97
State

law has also moved to protect creditors.98

The recently-introduced McCollum-Grassley Responsible Borrower
Protection Bankruptcy Act

99
would go much farther to shift the balance in favor

of creditors. It would require an individual debtor to seek relief under chapter
13, rather than chapter 7, if the debtor's monthly income is at least 75% of the
national median average and the debtor's projected monthly net income would
enable him or her to pay secured and priority debt and repay at least 20% of
unsecured debt in a five year plan.

100
Also, it limits a debtor to chapter 7

discharge no more frequently than every ten years and chapter 13 discharge to no
more frequently than every five years.

101
Like the Bankruptcy Reform Act of

95. See 1 1 U.S.C. § 362(d)(3) (1994). The statute provides that the stay will terminate 90

days from the commencement of a "single asset real estate" case unless the court extends the stay

for cause, the debtor has filed a plan with a reasonable possibility of confirmation within a

reasonable time, or the debtor has commenced payments which provide its mortgagee with a

reasonable return on the value of its collateral. Id.

The rule applies to cases in which a single property or project (other than residential property

with fewer than four units) on which the debtor conducts no "substantial business . . . other than

the business of operating the real property and activities incidental thereto": (a) is encumbered by

liquidated, noncontingent debt of not more than $4,000,000; and (b) generates substantially all of

the debtor's gross income. Id. § 101(51B).

96. See id. § 362(b)(2) (proceeding to establish paternity or to establish alimony, support,

or maintenance and collect from sources other than estate); id. § 363(b)(3) (act to continue

perfection of security interest); id. § 362(b)(9) (tax audit, issuance of notice of deficiency, demand

for tax returns, assessment and demand for payment); id. § 362(b)(18) (attachment of ad valorem

property tax lien).

97. See id. § 362(e) (requiring that the final hearing on a motion for relief from stay be

concluded, not merely commenced, within 30 days of the conclusion of the preliminary hearing).

98. The California legislature has recently enacted several bills to protect the interests of

secured creditors. Assembly Bill 3101 (effective January 1, 1995) amends California Civil Code

to abrogate an appellate court holding (Cathay Bank v. Lee, 18 Cal. Rptr.2d 420 (Cal. Ct. App.

1993) (requiring very specific language to waive certain rights of a guarantor of real property-

secured debt)); Senate Bill 1612 (effective September 16, 1994) amended section 2856 of the Code

of Civil Procedure § 580 to abrogate an appellate court holding (Western Security Bank, N.A., v.

Superior Court, 25 Cal. Rptr. 2d 908, 910 (1994) (holding that a lender who demanded payment

of a letter of credit following the non-judicial foreclosure of its real property security was seeking

recovery akin to a deficiency judgment)); Assembly Bill 2585 (effective January 1, 1997)

established that a guarantor of a real property-secured debt could waive its rights under a then-

recent appellate decision (Bank of Southern California v. Dombrow, 46 Cal. Rptr. 2d 656 (Cal. Ct.

App. 1995) (limiting guarantor's liability after judicial sale to the difference between the fair value

of the collateral and the amount of the guaranteed debt)).

99. H.R. 2500, 105th Cong., 1st Sess. (1997) (introduced September 18, 1997).

100. Id.

101. Id. § 121(1) & (2).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 9 1

7

1994, the McCollum-Grassley bill narrows the scope of the automatic stay.
102

It

provides that, in an individual case, the stay will terminate thirty days from filing

if the debtor filed a previous case within the preceding twelve months which was
dismissed.

103 To extend the stay, a party in interest must move for a
determination that the subsequent case was filed in good faith.

104
The bill would

also expressly authorize the bankruptcy court to grant "in rem" relief from a stay

against the debtor and, under certain circumstances, against third parties who
later acquire an interest with knowledge of the in rem order. 105

The proposed legislative findings clearly show how far the current mood has
swung from debtor protection:

The Congress finds the following:

(1) Record numbers of consumer debtors are filing for bankruptcy

relief, and the number of consumer debtors who do so are projected to
continue to increase.

(2) The present consumer bankruptcy provisions of the Bankruptcy

Code encourage debtors to avoid their financial and moral
responsibilities by giving too generous relief to debtors with ability to

pay some part of their debts. The cost of credit is unnecessarily
increased by such relief to the disadvantage of responsible American

consumers.

(3) The present consumer bankruptcy provisions of the Bankruptcy
Code have lessened the protection which historically has been given to
secured credit. Such protection encourages availability and lowers the

cost of such credit to responsible American consumers.

(4) The present procedural provisions of the Bankruptcy Code
unnecessarily impose high administrative and participation costs upon
creditors whose borrowers file for consumer bankruptcy relief.

(5) The basic relief available for debtors under the present
Bankruptcy Code is reasonable and necessary for those whose financial
circumstances justify such relief.

106

Though H.R. 2500 has not been enacted, 107 Representative McCollum and
others introduced a more comprehensive bankruptcy reform bill, H.R. 3150, in

102. Id. § 109.

103. Id.

104. Id

105. Id

106. Id § 2.

107. The Subcommittee on Commercial and Administrative Law held hearings on March 1 0,
1998.



918 INDIANA LAW REVIEW [Vol. 31:897

early 1998.
108

H.R. 3150 proposes an almost identical means-based test for
Chapter 7 relief as did H.R. 2500

109
with the same limitations on frequency of

discharge
110

and the same early termination of the stay for if the debtor filed then
dismissed a bankruptcy case in the previous year.

111
It also proposes many

additional creditor protections.
112

For example, in individual cases, a debtor

would not be eligible for any form of bankruptcy relief unless, within the
preceding ninety days, he or she has made a good faith attempt to create a non-
bankruptcy debt repayment plan.

113

While this legislation and the legislative findings are merely proposed, they
reflect a movement in public policy-evident in the Bankruptcy Reform Act of
1 994 and acts of other legislatures-away from debtor protection and toward
recognition of legitimate economic concerns of lenders.

The bankruptcy courts need to take note of current public policy, as reflected
by the actions of the legislatures, and rid themselves of depression-era attitudes
that we believe are at the bottom of the cases prohibiting and limiting waivers of
bankruptcy privileges. Once they do so, we believe they will evaluate waivers
of bankruptcy privileges in a more objective and legally apropos light.

II. The Law of Waiver

Having found that the present law concerning waiver of bankruptcy

privileges is founded on faulty or exaggerated premises rooted, perhaps, in the

attitudes of depression-era America, we must now determine a suitable method
of analyzing such waivers. To do this, we will evaluate the law of waiver as it
is applied in other areas of the law. In this regard we will look at the law of
waiver as it relates to waivers of constitutional, statutory, and common law rights
and privileges.

Before engaging in this analysis, it is instructive to notice what the true

problem is here. As has been shown, the issue is not one of waiver of
constitutional rights.

114
It is also not an issue of waiver of a statutory right.

115 At

best, what is involved is the waiver of certain statutory privileges provided by the

Bankruptcy Code.

Thus, the question is: When can a statutory privilege properly be waived?

1 08. H.R. 3 1 50 was passed in the House on June 1 0, 1 998.

109. Section 101 of H.R. 3150 sets a slightly more lax threshold for Chapter 7 relief than

H.R. 2500. A debtor will be eligible unless, among other things, he or she has monthly income of
not less than the highest national median family income reported for a family of the same or lesser

size.

110. H.R. 3150, § 171.

111. Id. § 122.

112. Subtitles C, D and E of Title 1 propose new "Adequate Protections" for, respectively,
secured creditors, unsecured creditors, and lessors.

113. H.R. 3150, § 104.

114. See supra Part III.A.

115. See supra Part III.B.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 9 1

9

If there is a restriction on waiver of such a privilege, it would need to be a

constitutional, statutory or common law one. But as we have seen, there is no
significant restriction on waiver of bankruptcy privileges as a constitutional or

statutory matter. Thus, if there is a restriction on such waivers, it must arise from

otherwise applicable law, which leaves us with the common law. Here the law
of contract is the relevant law that applies. As a result, the ultimate question is:
when can statutory privileges be waived by contract?

A. Waiver ofConstitutional Rights

Many people would probably be astonished at how easily fundamental
constitutional rights may be waived. The general rule is that one may waive a
constitutional right by "intentional relinquishment or abandonment of a known
right or privilege."

116
In the criminal context, it is often said that waivers of

constitutional rights must be "voluntary, knowing and intelligent."
117

While it is

not entirely clear whether waivers of constitutional rights in the civil context

must meet these standards, the cases that discuss the issue at least assume this to

be the case.
118

1. The Privilege Against Self Incrimination.—When one looks beyond
general principles to specific cases, it becomes evident how easily one's
fundamental constitutional rights may be waived. In the criminal context, the
privilege against self incrimination may be waived, and this waiver need not even
be explicit; it can be inferred from the circumstances.

119
It has even been held

that silence combined with an understanding of one's rights is enough to

constitute a waiver of this privilege.
120

Psychological pressure, such as police

speaking about the impact of a defendant's actions and publicity from those

actions on his or her family, can be applied in connection with obtaining a waiver

of the self-incrimination privilege.
121

There is even some authority to the effect
that the self incrimination privilege can be waived by prior agreement.

122
In the

case of Paramount Pictures Corp. v. Miskinis, the concurring opinion states that

it is possible, at least in the context of business agreements, for a party to waive

by prior agreement the self incrimination privilege as it relates to business

records.
123

2. Searches and Seizures.—One can waive the immunity from warrantless

1 16. Johnson v. Zebst, 304 U.S. 458, 464 (1937).

117. D.H. OverMyerCo. v. Frick Co., 405 U.S. 174, 185 (1972).

118. Id; see also Fuentes v. Shevin, 407 U.S. 67, 94-95 (1972); Aetna Ins. Co. v. Kennedy,

301 U.S. 389, 393-94(1937).

1 19. North Carolina v. Butler, 441 U.S. 369, 374 (1979).

120. Id. at 373; see also People v. Nunez, 579 N.Y.S.2d 959, 961 (N.Y. App. Div. 1992).

121. United States v. Barnett, 814 F. Supp. 1449, 1457 (D. Alaska 1992).

122. Paramount Pictures Corp. v. Miskinis, 344 N.W.2d 788, 807-09 (Mich. 1984) (Levin,

J., concurring).

123. Id.



920 INDIANA LAW REVIEW [Vol. 31:897

and unreasonable searches and seizures under the Fourth Amendment.124 Such
a waiver occurs upon consent to a search and the validity of such consent as a
waiver of constitutional rights is determined from the totality of the

circumstances.
125 An interesting fact about consent in this context is that it is not

the voluntariness of the consent itself that is determinative of the validity of the

waiver, but rather the reasonableness of the belief of the officer that a valid

consent has been given.
126

Thus, a voluntary and willing consent to waive rights

need not actually be given; the question is whether the officer reasonably

believed that there was such consent.
The circumstances in which such searches have been permitted shows the

ease of such a consent. The consent, as in the case of waiver of self
incrimination rights, need not be express but may be implied.127 A person may
ratify a search after it has occurred.

128
Consent need not then be prior to the

search. In some cases consent may be given by a third party so long as this
person has authority to give the consent.

129
For example, an owner of property,

one in control of property or one who has joint control over property may be able
to consent to a search so that the search is valid against a third party whose
property happens to be at the place where the search is conducted.

130 A bailee
may consent to a search of a bailor's property if the bailor has assumed the risk
of this type of event.

131 A host may consent to a search of premises on which a
guest's property is located, but whether the guest's property itself may be
searched in such circumstances is determined on a case by case basis.

132

124. 79 C.J.S. Searches and Seizures §§ 1 1 1-127 (1995); State v. Manns, 370 N.W.2d 157,

159 (Neb. 1985); State v. Carsey, 664 P.2d 1085, 1090 (Or. 1983); Gant v. State, 152 So. 710 (Fla.

1934).

125. 79 C.J.S. Searches and Seizures § 1 1 1 (1995); see also United States v. Oyekan, 786

F.2d 832, 838 (8th Cir. 1986); State v. Juhl, 449 N.W.2d 202, 208 (Neb. 1989); State v. White, 334

S.E.2d 786, 789 (N.C. Ct. App. 1985); People v. Driscoll, 449 N.Y.S.2d 809, 812 (N.Y. App. Div.

1982).

126. 79 C.J.S. Searches and Seizures § 1 1 1 (1995); see also United States v. Elliott, 50 F.3d

180, 186 (2d Cir. 1995); Wilkerson v. State, 594 A.2d 597, 603-04 (Md. Ct. Spec. App. 1991);

McCray v. State, 486 So. 2d 1247, 1250 (Miss. 1986).

127. 79 C.J.S. Searches and Seizures § 1 12 (1995); People v. Rincon, 581 N.Y.S.2d 293, 296

(N.Y. App. Div. 1992); State v. Buschkopf, 373 N.W.2d 756, 768 (Minn. 1985).

128. Atkins v. State, 325 S.E.2d 388, 391 (Ga. Ct. App. 1984).

129. 79 C.J.S. Searches and Seizures § 1 13 (1995); United States v. Matlock, 415 U.S. 164,

171, (1974); Daniels v. State, 534 So. 2d 628, 653 (Ala. Crim. App. 1986).

130. 79 C.J.S. Searches and Seizures § 113 (1995); State v. Greer, 530 N.E.2d 382, 391

(Ohio 1988); Ex parte Hilley v. State, 484 So. 2d 485, 490-01 (Ala. 1986); State v. Johnson, 684

S.W.2d 581, 582 (Mo. Ct. App. 1984); State v. Wimer, 168 W. Va. 417, 424, 284 S.E.2d 890, 894

(W. Va. 1981).

131. 79 C.J.S. Searches and Seizures § 1 14 (1995); In re Javier A., 206 Cal. Rptr. 386, 392

(Cal. Ct. App. 1984).

132. 79 C.J.S. Searches and Seizures § 116 (1995); Ingram v. State, 703 P.2d 415, 425

(Alaska 1985).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 92

1

Even deception may be used to gain entry and search a person's property.
For example, use of undercover police to deceive the owner of their true identity

in order to gain access to a location and search is appropriate where the scope of

the visit is that intended by the consenting party.
133

Generally, these cases

involve invitations to undercover police to engage in illegal activity.
134

However,

some authority allows deception even as to the purpose of the visit. There are
cases allowing undercover police to pose as home buyers who then use this
access to search the home.

135
Here, not only is there deception concerning the

identity ofthe party entering the premises, as in the cases noted above, but also

there is deception as to the purpose of the visit that purports to be the wholly

legal one of inspection of a home by a potential home buyer.
In the case of searches, waiver is determined not by the existence of actual

consent, but by an officer's reasonable perception of it. Consent may sometimes
be given by third parties, and deception is sometimes permissible in obtaining the

consent. Thus, a broad range of circumstances exists in which Fourth

Amendment rights may be easily waived.
3. Right to Counsel.—The Sixth Amendment right to counsel may also be

waived. The standard used is similar to that applied to self-incrimination
waivers. But again, as in the case of consent searches, deception of some kinds
is allowed. It has been held that recording conversations of a defendant with a

third person who was cooperating with the police did not violate the defendant's
right to counsel, even though the only explicit waiver of this right by the

defendant had occurred two months earlier.
136

The point ofdiscussing waivers ofcertain constitutional rights is to show that
the fundamental constitutional rights that form the foundation for our system of

justice and our society can be waived quite easily, even in circumstances where

the force of the state is being used to deceive and place psychological pressure

on the individual. The standards for waiver are not stringent.
4. Contractual Waivers ofConstitutional Rights.—One might respond by

saying that, although waivers of constitutional rights do occur in the

circumstances described, there is a vital difference between these waivers and

waivers ofbankruptcy privileges. The difference is that waivers of constitutional

rights generally occur in the context of a present waiver of an existing right (i.e.,

a party is given the opportunity at a particular point in time to either waive or not

waive a right that exists at that point in time). On the other hand, in the
circumstances of a waiver of bankruptcy privileges, the waiver is not a present

waiver of an existing right but an anticipatory contractual waiver of a potential

future privilege. This serves to distinguish the situations, since we give more
credence to the present waiver of an existing privilege than to an anticipatory

133. 79 C.J.S. Searches and Seizures § 120 (1995); United States v. Bosse, 898 F.2d 113,

115 (9th Cir. 1990); People v. Catania, 398 N.W.2d 343, 346 (Mich. 1986).

134. 79 C.J.S. Searches and Seizures §120 (1995).

135. Id.; see also People v. Jaquez, 209 Cal. Rptr. 852, 857 (Cal. Ct. App. 1985); State v.

Poland, 645 P.2d 784, 792 (Ariz. 1982).

136. Jenkins v. Leonardo, 991 F.2d 1033, 1038 (2d Cir. 1993).



922 INDIANA LAW REVIEW [Vol. 3 1 :897

contractual one made before the privilege may be exercised.
Nonetheless, when carefully analyzed, this distinction does not differentiate

bankruptcy waivers from the waivers of constitutional rights. There are many
contexts in which we allow the waiver of constitutional rights by means of an
anticipatory contractual waiver. For instance, the Supreme Court has decided
that due process rights may be anticipatorily waived by contract. The seminal
case on this issue is D.H. OverMyer Co, Inc. v. Frick Co., 131 where it was held
that procedural due process rights, like the right to a hearing, may be waived in
a cognovit note that allows entry ofajudgment against a debtor without a hearing

or trial on the merits of the claim.
138

Similar results have been obtained in other

due process cases.
139

Likewise, it has been held that First Amendment rights of freedom of speech
may be waived by contract. In Snepp v. United States™ the Court held that a
CIA agent had properly waived First Amendment rights to freedom of speech
concerning his experiences in the CIA by signing an agreement relating to his
employment that precluded him from publishing his experiences without
approval of the CIA.

141
This idea has been restated in other cases.

142

It has even been suggested that self-incrimination rights may be waived
contractually, at least in the case of commercial agreements.

143
Thus, not only

is it simple to waive fundamental constitutional rights but such waivers may also
validly occur by means of an anticipatory contractual waiver.

B. Waiver ofStatutory Rights and Privileges

1. The Standardfor Enforcement of Waivers.—Within certain parameters,
statutory rights and privileges may be waived, and these rights and privileges
may be waived by contract. The general standard for when such privileges may
be waived and when they may not has been stated in many ways, but all of these
formulations have a common theme: statutory privileges may not be waived
when the statutory privilege was created for the benefit of the general public
pursuant to some important public policy.

137. 405 U.S. 174(1972).

138. Mat 185.
139. Bryant v. Jefferson Fed. Sav. & Loan Ass'n, 509 F.2d 511,515 (D.C. Cir. 1974) (noting

that a person can waive due process rights in an agreement describing a lender's rights to foreclose

nonjudicially on property); Bonner v. B-W Utilities, Inc., 452 F. Supp. 1295, 1303 (W.D. La. 1978)
(stating that due process rights may be waived but holding that the relevant person in the case had

not entered into the contract in question).

140. 444 U.S. 507(1980).

141. A/. at510n.3.

142. Allied Artists Pictures Corp. v. Alford, 410 F. Supp. 1348, 1354 (W.D. Tenn. 1976)

(determining that although one can waive First Amendment rights by agreement, such a waiver by

local theaters is not binding on distributors of films). See generally G. Richard Shell, Contracts

in the Modern Supreme Court, 81 CAL. L. REV. 433, 479-82 (1993).

143. See Miskinis, 344 N.W.2d at 807-09.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 923

It has been said, for instance, that one cannot waive a statutory privilege if

the privilege was created for the benefit of the general public.
144

Similarly, it has

been stated that a statutory privilege or right may not be waived if such waiver
contravenes clearly enunciated public policy.

145
This idea has also been

expressed as allowing waiver where the statutory right waived was created for
the benefit of individuals and prohibiting waiver where the right was created for
a public reason.

146
Other courts have stated the rule more generally, allowing

waiver of statutory rights and privileges except when the rights or privileges
involve questions of public policy.

147
Even more generally, a statutory right may

not be waived where such waiver would violate the public interest.
148

Waiver is

also not permissible when waiver would do "violence" to the public purpose of
the law.

149

Distinctions concerning the stringency of requirements for waiver seem to

be made depending on the types of rights involved in the particular statutory
provision. Statutes dealing with property rights seem to be most amenable to
waiver. For instance, a statutory right may be waived when the statute has as its
purpose the protection of property rights rather than the protection ofthe general

public.
150 On the other hand, labor law cases appear to make waiver, where

permissible, more burdensome by requiring that the waiver be "clear and
unmistakable."

151

144. Canal Elec. Co. v. Westinghouse Elec. Corp., 548 N.E.2d 182, 187 (Mass. 1990) (stating

that waiver of statutory rights is permissible when the statute has the purpose of protection of

property rights rather than protection of the general public); Halsrud v. Brodale, 72 N.W.2d 94, 99

(Iowa 1955) (noting that statutory rights concerning property drainage may be waived);

Southwestern Bell v. Employment Sec. Review Bd., 502 P.2d 645, 651 (Kan. 1972) (confirming

that a statutory right that exists to alleviate a possible distress among the public cannot be waived).

145. Allerton Constr. Corp. v. Fairway Apartments Corp., 267 N.Y.2d 860, 862 (N.Y. Sup.

Ct. 1966) (finding that a party cannot waive a right conferred by statute if such a waiver

"contravenes clearly enunciated public policy").

146. 28 Am. Jur. 2d Estoppel and Waiver § 164 (1966); Benane v. International Harvester

Co., 142 Cal. App. 2d Supp. 874, 878-79 (Ct. App. Dep't Super. Ct.) (voting law held to be for a

public reason and, thus, not subject to waiver); Evan v. Whicker, 59 S.W.2d 420, 423 (Tex. App.

1933) (holding that statutory rights of an individual as an individual are waivable).

147. Ostafin v. State, 564 N.W.2d 616, 618 (N.D. 1997) (finding that a criminal defendant

cannot waive rights to "good time" allowances in criminal sentencing since the policy of prison

order is at stake); Motor Contract Co. v. Van Der Volgen, 298 P. 705, 707 (Sup. Ct. Wash. 1931)

(noting that an agreement making an otherwise non-negotiable document a negotiable one is void

and not a waiver of rights to counterclaim); Wellens v. Beck, 103 N.W.2d 281, 283 (N.D. 1960)

(finding that one can waive statutory right, including a setoff statute, so long as the waiver is not

against public policy).

148. 6ACorbin on Contracts § 1515, at 728 (1962).

149. Canal Elec. Co., 548 N.E.2d at 187.

150. Id. at 187-88.

151. International Brotherhood ofTeamsters v. Southwest Airlines Co., 875 F.2d 1 129, 1 135-

36 (5th Cir. 1989); George Banta Co. Inc. v. NLRB, 686 F.2d 10, 20 (D.C. Cir. 1982); Red Bank



924 INDIANA LAW REVIEW [Vol. 31:897

Given the different sorts of "public policy" language used by the courts in
setting standards for waiver of statutory rights and privileges, it is not obvious

how the standard can be generally described. It cannot be the case that just any
public interest at all will make a statutory privilege exempt from waiver. If this
were the case, no statutory privilege could be waived since they are all based on
some sort of supposed public interest, or the legislature would have no business
making the law in the first instance. It is evident then that a non-waivable
statutory privilege must be imbued with a high level of public policy interest.
The actual outcomes of cases are determined on a case-by-case basis by
analyzing whether the public interests involved in the statute rise to this high

level. How can this high level of public interest best be described?
It will not be denied that laws enacted specifically to protect public health

and physical welfare fall within the rule prohibiting waiver—a high level of
public interest exists here. This category explains the reticence of the courts to

allow waivers of rights relating to labor laws and those meant to protect against
physical injuries. But it is more than health and safety laws that are deemed
exempt from waiver. Thus, a health and welfare explanation for the high level
ofpublic interest necessary to preclude waiver is too narrow to explain the cases.

Perhaps a better general way to express the standard that has emerged among
most courts is to say that a statutory privilege may not be waived when there is
a strong public policy for the benefit of the general public underpinning the

provision. There are two elements in this formulation: first, there is the
necessity of a strong public policy behind the statutory provision; second, this

policy must be intended to benefit the general public. These elements are

reflective ofthe case law and conform to the idea that we shall not allow violence
to be done to the policies underlying statutory law.

The second aspect of the proposed general standard for analyzing waivers of
statutory privileges contains some ambiguity. What is the "general public?"
Does the term include everyone, or may it refer to some subset of the general
public? Cases dealing with the meaning of "general public" do not completely
answer the question. The ordinary definition of the general public includes
everyone,

152
but some cases take a more restrictive view of the general public.153

Reg'l Educ. Ass'n v. Red Bank Reg'l High Sch. Bd. of Educ, 393 A.2d 267, 276 (N.J. 1978); see

also Peter C. Schwartz, Section 8(d) ofthe NLRA and the Duty to Decision-Bargain over Work

Relocation: Some Observations on Management Rights After Milwaukee Spring II, 36 SYRACUSE

L. REV. 1055, 1068 (1985) (stating that general rule regarding waiver of statutory labor law rights

is that such waiver must be "clear and unequivocal" and that the language of waiver must be

explicit).

152. Harvey v. Bell, 732 S.W.2d 138, 140 (Ark. 1987) (determining that general public

means anyone and everyone, each having the right to use property to the full extent for which it is

dedicated); Krebs v. Beltrami County, 6 N.W.2d 803, 805 (Minn. 1942) (noting that the general

"public" said to mean those other than persons in the general vicinity of a street and to include all

members of the general public who are represented by the local government); Rayor v. City of

Cheyenne, 178 P.2d 1 15, 1 16 (Wy. 1947) (stating that the "general public [to whom the land was
dedicated] is not confined to the citizens of a municipality, but embraces all the people"). The



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 925

Note also that the cited cases defining the general public are not decided in the
context ofdetermining the validity ofwaivers ofa statutory privileges. Thus, any

answer here is bound to be an extrapolation from cases not precisely on point.
We will ultimately analyze the "general public" issue under broad and narrow
constructions of its scope.

The proposed two prong standard must, before being applied, be reviewed
under recent Supreme Court authority.

2. The Supreme Court View of Use of Public Policy to Invalidate
Contractual Provisions.—If a court finds that a contractual waiver of a statutory
privilege is not enforceable due to the public policy underlying the statute, the

court is invalidating the contractual clause on public policy grounds. It is by this

route that courts have typically invalidated waivers of bankruptcy privileges.

Recent Supreme Court jurisprudence takes a dim view of the invalidation of
contractual provisions on public policy grounds.

In an excellent exposition on this issue, Professor G. Richard Shell has

analyzed Supreme Court precedent on public policy invalidation of contractual
provisions in the Lochner, Warren and modern courts. 154 In this analysis, Shell
concludes that the modern Supreme Court is more conservative than even the
Lochner court in refusing to allow invalidation of contractual clauses based upon

public policy concerns. The standard applied by the modern Court is that public
policy defenses are limited to instances where existing laws and precedents

demonstrate a "well defined and dominant policy against" contract

enforcement.
155

In the field of invalidation of contractual provisions based on

statutory public policies, the Supreme Court "has refused to interpret statutory
policies to override private contracts unless literally compelled by Congress to

do so."
156

Shell concludes that in the modern Supreme Court, contract enforcement is
a preferred jurisprudential value.

157
It is this value that underlies the Court's

jaundiced view of public policy invalidation of contractual provisions. Another

motivation ofthe Supreme Court's view is that economic efficiency is a value to
be guarded in determination of these issues and that economic efficiency is
generally harmed by invalidation of contractual provisions freely adopted.

158

The ultimate arbiter of the issue of the validity of waivers of bankruptcy
privileges is the Supreme Court. Thus, the standards of the Supreme Court with
respect to invalidation of contractual provisions on the grounds of statutory

group is not represented merely by a city, but "by the legislature of the state." Id.

153. Southern Ind. Gas v. Steinmetz, 377 N.E.2d 1381, 1383 (Ind. Ct. App. 1977) (finding

that general public means "a great multitude of persons who in the course of daily events would be

exposed to danger of power lines"); Plancich v. State, 693 P.2d 855, 858 (Alaska 1985)

(determining that general public means vessels and others who may want to use the dock facilities).

1 54. Shell, supra note 142, at 452-62.

155. United Paperworkers, 484 U.S. at 44; see also Shell, supra note 142, at 458-62.

1 56. Shell, supra note 142, at 480.

157. Id. at 452.

158. Id. at 506-09.



926 INDIANA LAW REVIEW [Vol. 3 1 :897

public policy must be met before such invalidation can be countenanced. As a
result, the standard that has been derived in the previous analysis of invalidation

of waivers of statutory privileges must be supplemented with this authority.
Therefore, it needs to be recognized that not only must a strong public policy for
the benefit of the general public be found to invalidate a waiver of bankruptcy

privileges but also the underlying policy must be based on existing law and
precedent. In addition, the underlying policy must be a "well defined and
dominant public policy against contract enforcement" and be literally compelled

by the statute.

Thus, a refined version of the standard that must be met to support public
policy invalidation of a waiver of bankruptcy privileges is as follows:

1. There must be a strong, well defined and dominant policy against
enforcement of the waiver expressed in existing law and precedent;

2. The policy must be one designed for the benefit ofthe general public; and,
3. The policy of not enforcing the waiver must be one literally compelled by

the language of the statue.

With this standard in mind, we will analyze whether waivers of bankruptcy
privileges should be enforced.

III. Application of the Law of Waiver to Bankruptcy Privileges

Case law that has developed in the area of waiver of bankruptcy privileges

does not discuss the issue as a question of contractual waiver of statutory

privileges. There is no discussion of the general standards for waiver of such

statutory privileges. In addition, there is no consideration of the waiver of

statutory privileges in other areas of the law. Instead, the question is controlled

by the mythology surrounding waiver of bankruptcy privileges that has been

previously discussed.
159

Part of this mythology is the jettisoning of both

discussion and application of the general rules of law that relate to waiver of

statutory privileges. In the bankruptcy arena, the general law ofwaiver is walled

off and ignored, and the issue is treated as though there is something unique

about bankruptcy in this regard.

However, there is no basis for such treatment of the law of bankruptcy.
160

Indeed, given the fact that bankruptcy is statutory law and is not a fundamental

liberty in our system, it is surprising to find that fundamental constitutional

liberties can be waived more easily than privileges in bankruptcy. One can waive
the privilege against self-incrimination after being placed under psychological

pressure, can be deceived out of their right not to be subjected to unreasonable

searches and seizures, and can waive many important statutory privileges.
However, one cannot waive one's ability to file bankruptcy or to get a discharge

or, in many jurisdictions, to have the benefit of an automatic stay. This situation
is peculiar and is a result of the mythology and historical curiosities described

159. See supra Part II.B.1-6.

160. See supra Part II.B.1-6.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 927

above.
161

So how should one look at waivers of bankruptcy privileges? Such waivers
should be viewed simply as contractual waivers of statutory privileges that are

subject to the same rules as are applicable to all other statutory privileges. Thus,
the rules regarding waivers of other statutory privileges can be applied to waiver

of bankruptcy privileges.

This does not, of course, mean that the result of whether bankruptcy
privileges may be waived is foreordained to come out in a particular way. Some
bankruptcy privileges may be subject to waiver and others not. The main point
here is to lay aside the mythology surrounding the waiver of bankruptcy

privileges. This is not a special bankruptcy issue. It is just another issue of

waiver of statutory privileges.

A. Waiver ofOther Statutory Privileges

Before attempting to apply the general standard for waiver of bankruptcy

privileges, one might, from reviewing contexts in which statutory privileges have

been permitted to be waived and those where waiver has not been allowed, be

able to construct an argument that debtor-creditor law, and the law of bankruptcy

generally, is simply not the sort of area of law where waiver of statutory

privileges has been allowed. A review of the circumstances where waiver has
been allowed is, then, appropriate.

Note that, as has been mentioned before, the area of the relation of employer

and employee is one where waiver of employee statutory privileges has been
viewed with great suspicion and only rarely permitted. For example, employee

rights to damages for negligent injury, to annuity and pension benefits, and to
regulated hours of work have been held to be statutory privileges not subject to
waiver.

162
Similarly, workers have been held to be unable to waive rights given

under collective bargaining contracts.
163 A worker may not waive the right to

workers' compensation by assigning the rights to compensation to a third

person.
164

Waiver of rights to the minimum wage is not permitted.165 Also, a
person cannot waive rights to unemployment compensation.

166
It has been held

that a union cannot waive the statutory rights of employees to their usual pay

while voting.
167 The statutory right to have a union represent an employee in a

grievance procedure may not be waived in a collective bargaining agreement. 168

161. See supra Part II.C.

1 62. 28 AM. JUR. 2d Estoppel and Waiver § 165(1 966).

1 63

.

Corbin on Contracts, supra note 1 48, at 73 1

.

164. Egy v. United States Fidelity & Guarantee Co., 651 P.2d 954, 958 (Kan. Ct. App. 1982).
165. Sherba Bros., Inc. v. Campbell, 361 So. 2d 814, 815 (Fla. Dist. Ct. App. 1978).

166. Southwestern Bell v. Employment Sec. Review Bd., 502 P.2d 645, 653 (Kan. 1972).

167. Benane v. International Harvester Co., 142 Cal. App. 2d Supp. 874, 880 (Cal. App.

Dep't Super. Ct. 1956).

168. Red Bank Reg'l Educ. Ass'n v. Red Bank Reg'l High Sch. Bd. of Educ, 398 A.2d 267

(N.J. 1978).



928 INDIANA LAW REVIEW [Vol. 31:897

In employer-employee relations, there are many statutory privileges that cannot
be waived. This is undoubtedly due to the strong public interest in protecting the

health, safety and well-being of workers.

On the other hand, in the area of regulation of property rights, it is generally
accepted that statutory privileges may be waived; there is not a sufficient general
public interest in these issues to invalidate waivers. It has been held that a

person's statutory rights to consequential damages may be waived.169 Statutorily
mandated drainage rights on real property also have been held subject to
waiver.

170
Further, the liability of one party to another for negligence may be

limited, thereby constituting a waiver of rights to damages.
171

While most
statutory property related rights may be waived, not all property rights may be
waived. For instance, the right to appraisal before foreclosure may not be subject
to waiver.

In evidentiary, procedural and fundamental liberty areas, one finds that rights

and privileges may generally be waived. We have already seen that
constitutional privileges can be waived quite easily.

173
Statutory social worker-

patient privileges may be waived under certain circumstances.174 Even what
appear to be some of the most protected statutory rights, such as the rights
provided under civil rights legislation, can be waived.

175
Although it is often held

that protections given by statutes of limitations cannot be waived, there are at

least some circumstances where rights under these statutes may be waived. The
court in Fireman 's Fund Insurance v. Sand Lake Lounge, Inc. 176 recognized that,
as a general rule, a promise to waive the benefit of a statute of limitation or an

agreement not to use it as a defense is against public policy if made at the time
of contracting.

177
However, the court noted Corbin's statement that while parties

cannot extend the statute of limitations, they can shorten it if the time period and

circumstances surrounding the making of this promise are reasonable.
178

Therefore, according to the opinion in Fireman 's Fund, the court needs to look

at the reasonableness of the provision at the "inception of the loss" to determine

169. Canal Elec. Co. v. Westinghouse Elec. Corp., 548 N.E.2d 182, 184 (Mass. 1990).

1 70. Halsrud v. Brodale, 72 N.W.2d 94, 99 (Iowa 1955).

171. See Lee v. Sun Valley Co., 625 P.2d 361 (Idaho 1984) (enforcing waiver of rights

against stable renting horses).

1 72. Susan E. Drake, Debtor 's Contractual Waiver ofAppraisal Rights Held Invalid, 47 S.C.

L. Rev. 37(1995).

1 73. See supra Part III.A.

1 74. Community Serv. Soc'y v. Welfare Inspector Gen., 398 N.Y.S.2d 92, 95 (N.Y. Sup. Ct.

1977) (noting that any waiver of privilege in the social worker-patient relationship must involve the

"clear relinquishment of a known right").

175. Town of Newton v. Rumery, 480 U.S. 386 (1987) (upholding contractual waiver of

rights under 42 U.S.C. § 1983); Evans v. Jeff D., 475 U.S. 717 (1986) (enforcing contractual waiver

of right to attorney's fees under 42 U.S.C. § 1988); see also Shell, supra note 142, at 480-82.

176. 514 P.2d 223 (Alaska 1973).

177. Id. at 226.

178. Id. at 226; see also 1 A CORBIN ON CONTRACTS § 218 (1963).



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 929

if it was reasonable in the contract in question.
179

In Fireman 's Fund, the court
performed this analysis and found the shortened time period was unreasonable
because of the uneven bargaining power in the transaction that relegated one

party to a "take-it-or-leave-it" position.
180

Thus, as is typical, the bargaining

power of the parties played a role in the enforceability of the contract provision.

In the area of debtor-creditor law a number of cases disallow waiver of rights
and privileges given to debtors. In these types of cases, some of the best
arguments against enforcement of waiver of bankruptcy privileges can be made
as a matter of contract law. Debtors have been denied permission to waive the

privileges of discharge, usury law, and exemptions.
181

That exemptions cannot

be contractually waived is generally accepted.
182

It has also been held that rights

to redemption in connection with foreclosure may not be waived.183 While
mechanics' liens have been held to be waivable, it has been held that the ability

to waive rights to see records relating to construction work may not be waived. 184

There are, nonetheless, debtor-creditor related laws that can be waived.

There is authority that usury defenses can be waived in some circumstances. 185

As noted previously, mechanics liens may be waived.186 The right of setoff
provided in a statute also may be waived.187 As described earlier, at least in a
federal receivership, the right to file bankruptcy itself may be limited.188

While the law relating to waiver of rights in the debtor-creditor area contains

inconsistencies, there does seem to be a reluctance to allow waiver of a debtor's

statutory rights. This may be a result ofthe same historical background that has
led to the mythology relating to waiver of bankruptcy privileges.

It is very difficult to sustain the waiver of privileges under health and welfare

statutes, as evidenced by the labor cases. This fits well with the standard earlier

proposed for when waivers of statutory privileges are appropriate. First, the
necessity for a strong public policy is met in laws to protect the safety or general

well being of workers. Second, the statute must be for the benefit of the general

public, which is the case in labor and related laws. Third, the underlying policies

for protection ofthe general public are typically contained in the literal directives

ofthe statute. Laws directed at the safety and welfare of workers are specifically
and explicitly made for the benefit of the general public—that is, those who

1 79. Fireman 's Fund, 5 1 4 P.2d at 226.

180. Id. at 227.

181. Corbin on Contracts, supra note 1 48, at 73 1 -32.

182. See, e.g., Industrial Loan & Inv. Co. v. Superior Ct, 209 P. 360 (Cal. 1922); Iowa Mut.
Ins. Co. v. Parr, 370 P.2d 400 (Kan. 1962).

183. Elson Dev. Co. v. Arizona Sav. & Loan Ass'n, 407 P.2d 930 (Ariz. 1965).
184. Allerton Constr. Corp. v. Fairway Apartments Corp., 267 N.Y.S.2d 860 (N.Y. Sup. Ct.

1966).

1 85. Dunbabin v. Brandenfels, 566 P.2d 941 (Wash. Ct. App. 1977) (finding that a settlement

agreement waiving usury defense is enforceable).

186. Allerton, 267 N.Y.S.2d at 861.

187. Wellens v. Beck, 103 N.W.2d 281 (N.D. 1960).

188. United States v. Royal Business Funds Corp., 724 F.2d 12, 15-16 (2nd Cir. 1983).



930 INDIANA LAW REVIEW [Vol. 3 1 :897

participate in the economic world in one way or another. Thus, the language of
such statutes militates against waiver.

On the other hand, property rights are more easily waived. This may be a
product of either less powerful public policy interests or the fact that laws

relating to property interests are directed at something less than the general

public—those that own particular types of property.
In the area of evidentiary, procedural, and liberty-related laws, there is

considerable leeway given in allowing waivers of rights. This is, in some cases,
due to generally less forceful policy interests underlying the laws and in others,

by the typical rules relating to waiver of constitutional liberty interests.
189

In the area of debtor-creditor relations the results are mixed. We find cases
going in different directions on differing sorts of debtor-creditor laws. In this

domain then it may be accurate to say that waivers of different sorts of privileges
are closely and individually scrutinized; generalizations cannot be made on the
strength or application to the general public of the policies underlying such

differing privileges. The cases dealing with waivers relating to property interests

support allowing waivers in the debtor-creditor area. Thus, simply looking at the

category of debtor-creditor laws and the results of cases in this area does not

resolve the issue of whether bankruptcy privileges may be waived. Moreover,
the results in debtor-creditor cases may be an artifact of the same history and
mythology that we have seen applied to bankruptcy waivers. To resolve the issue
presented, it seems necessary to apply the general standard for waiver of

statutory privileges previously described to bankruptcy waivers.
190

B. Application ofthe Statutory Waiver Standard to Waiver

ofBankruptcy Privileges

To properly determine if waivers of statutory bankruptcy privileges are
permitted as a matter of contract law, the three prongs of the standard discussed

previously must be applied.
191

It is necessary first to determine if there is, in

existing law and precedent, a strong, well defined and dominant public policy

behind the statute militating against waiver. Second, it is necessary to ascertain

whether, assuming there is a strong policy behind the law, this policy is directed

at the general public. Third, the policy invalidating waiver must be literally

compelled by the statute.

1. The Strength of the Public Policy.—The case law asserting that
bankruptcy privileges may not be waived or may be waived only in extraordinary
circumstances generally relies on the idea that such waivers violate public policy.

Under the proposed three prong standard and Supreme Court precedent, any
policy said to support invalidation of a contractual provision must be contained

in existing law and precedent.
192 The existing law and precedent in this area are

189. See supra Part III.A.

190. See supra Part III.B.

191. See supra Part II.B.2.

192. United Paperworkers, 484 U.S. at 43; see also supra Part II.B.2.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 93

1

relatively sparse and are generally found in cases at the bankruptcy court level.

The Supreme Court has not dealt with this issue. There is some legislative
history that supports the stated policies, but there is also legislative history that

supports countervailing policies.
193 To say that "existing law and precedent"

establishes the policies argued to preclude waivers of bankruptcy privileges is a

weak and suspect statement.
Moreover, as has been established,

194
the policies that are said to weigh

against waiver of bankruptcy privileges are either fallacious, much more weak
and restricted than appears at first blush, or are pitted against strong policies
supporting such waivers. This is not the kind of "well defined and dominant"

policy argument necessary to support a prohibition on waivers. In these
circumstances, it is not arguable that existing law and precedent demonstrates a

"well defined and dominant policy against contract enforcement."
195

Given the

opposing policies and conflicting precedent, and the Supreme Court's restrictive
stand on when private agreements can be found unenforceable due to public
policy concerns, there is insufficient policy horsepower to overcome contractual
waivers on policy grounds.

2. The Focus ofthe Policies.—Even if we assume that the policies against
enforcement of waivers of bankruptcy privileges meet the first prong of the test
for contractual waiver of statutory privileges, there is difficulty in finding that the

second prong is met. Are the privileges of filing bankruptcy, and making use of
the automatic stay and the discharge meant to protect the "general public?" As
we have seen, what is typically meant by the "general public" is all of the public.
In a sense, one may consider bankruptcy law to be a law to protect the interests
of the general public. It aids most any person in financial difficulty. However,

the bankruptcy law surely does not have this broad sense in the same way that
health and safety laws do. The bankruptcy laws are directed at a smaller group
than the group of all persons involved in the economy as workers, producers, or
consumers.

One can forcefully argue, in fact, that the bankruptcy law is not directed at
the general public but at a very limited group—the class of debtors and their
creditors and, even more specifically, the class of debtors in financial difficulty
and their creditors. This is not the "general public;" it is not the public as a
whole. When looking at more specific provisions of the Code, like the discharge
provisions, it becomes even more apparent that the focus of these provisions is
not the whole of the general public. The discharge provisions are aimed at only
a part of the debtor class—those individuals who have not engaged in certain
illegal or immoral activities and corporations successfully reorganizing.

196 Many
portions ofthe automatic stay have the same kind ofmore limited characteristics.
For example, all ofthe stay provisions relating to enforcement of liens apply only

to the classes of debtors and creditors owing or owning secured debt.

193. See supra Part II.B.2.

1 94. See supra Part II.B.2.

1 95. United Paperworkers, 484 U.S. at 43.

196. See 1 1 U.S.C. § 524, 1 141 (1994).



932 INDIANA LAW REVIEW [Vol. 31:897

Recall also that waivers of property-related laws are not closely scrutinized

and typically are enforced.
197

This may be due to the fact that property-related
laws often are focused on subsets of the public. Bankruptcy law may be viewed
similarly.

The bankruptcy law is not directed at the "general public." It is aimed at a
smaller group. Specific provisions, like those related to the discharge and
automatic stay of lien enforcement that are benefits of bankruptcy that are

sometimes waived, are aimed at even smaller subsets of entities. None of the
even more restricted notions ofthe "general public" would seem to apply to these
small segments of the public. These restricted "general public" cases appear to

involve either the vast majority ofthe public or all persons engaging in a certain

activity or commerce.
198

The bankruptcy law is aimed at more circumscribed
groups—failing debtors and their creditors, not all persons engaging in an
activity or commerce.

The conclusion on this issue is not crystalline. Certain debtor-creditor law
waiver cases, like the cases stating that exemptions may not be waived, imply
that the general public standard is met in the case of the bankruptcy law. On the
other hand, these results may be an artifact of the courts in these cases actually
applying a standard more hostile to waivers than the one proposed here and
supported by contract law authority. As we have seen, the application of such
hostile standards may be a result of historical concerns about debtor-creditor
relations that arose out ofthe Great Depression. There is no doubt, however, that

a strong argument can be made that the bankruptcy law is not one directed at the
general public but a law directed at a certain subgroup of the larger class of

debtors and, sometimes, creditors.

3. Literal Compulsion ofInvalidity of Waivers.—The Supreme Court's view
of invalidation of contract provisions based on public policy requires for

invalidation that such invalidation be compelled by the language of the statute.

From our review of relevant provisions of the statute, however, there is nothing
in the language of the statute that compels invalidation ofwaivers of bankruptcy

privileges.
199

Provisions commonly argued to be of significance here generally
are not and any provisions that do have significance have this significance in only

very narrow circumstances.
200

Therefore, regardless of one's conclusion on the first and second prongs of

the waiver invalidation test, this third prong appears to destroy any possibility of

prohibition of such waivers. Note that the result here applies equally to all

waivers of bankruptcy privileges. The same logic applies to waiver ofthe ability

to file bankruptcy, waiver of the stay, waiver of discharge and waiver of other

provisions of the Bankruptcy Code not specifically precluded by statutory
language.

197. See supra note 172 and accompanying text.

198. See supra notes 152-53 and accompanying text.

1 99. See supra notes 3 1 -45 and accompanying text.

200. See supra notes 18-19 and accompanying text.



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 933

C. Contractual Limitations on Waivers ofBankruptcy Privileges

Concluding that bankruptcy privileges may be waived when looked at from
the perspective of the law of contractual waiver cannot end our analysis. There
are other doctrines of contract law that may limit such waivers.

Foremost among these limitations is the doctrine of unconscionability. It has
been said that this doctrine requires both procedural unconscionability (a
problem relating to the way the contract was created) and substantive
unconscionability (an oppressive provision in the contract).

201 However viewed,
this doctrine focuses primarily on discrepancies in bargaining power of the
parties.

202 Where there is a major difference in the bargaining power of the
parties that results in a surprising or oppressive provision, the court may refuse
to enforce or limit application of the provision.

203
With this focus on bargaining

power, it is not shocking that the doctrine ofunconscionability is most frequently

found in cases ofconsumers and only rarely in commercial cases.
204

The doctrine
has frequently been used to invalidate or limit waiver provisions in contracts.

205

Therefore, where a waiver is found to be oppressive and burdensome and is a
result of unequal bargaining power, courts may refuse to enforce a waiver of
bankruptcy privileges.

Similarly, there is reluctance in the courts to enforce certain sorts of

boilerplate non-negotiated agreements.
206

Adhesion contracts ofthis kind are not

enforced when the party with superior bargaining power offers a form contract
on a take-it-or-leave- it basis, and the subject matter of the contract is one of
necessity, not reasonably available elsewhere.

207
It has been forcefully argued

that the modern reality of contracts is such that a contract should be enforced
only to the extent ofterms that have been actually bargained over, plus any other

reasonable terms contained in the contract.
208

Such an approach would also be
useful in avoiding the enforcement of waivers of bankruptcy privileges where a

201

.

Arthur Allen Leff, Unconscionability and the Code—The Emperor 's New Clause, 115
U. PA. L. Rev. 485, 488 (1967); see also Arkwright Boston Mfrs. Mut. Ins. Co. v. Westinghouse

Elec. Corp., 844 F.2d 1 174 (5th Cir. 1988).

202. Hydraform Prods. Corp. v. American Steel & Aluminum Corp., 498 A.2d 339 (N.H.
1985); see also U.C.C. § 2-302, Cmt. 1.

203. Hydraform, 498 A.2d at 343 (citing Cryogenic Equip., Inc. v. Southern Nitrogen, Inc.,

490 F.2d 696, 699 (8th Cir. 1974)).

204. Howard O. Hunter, Modern Law of Contracts ( 1 976); see also Consolidated Data
Terminals v. Applied Digital Data Sys., Inc., 708 F.2d 385 (9th Cir. 1983); Earman Oil Co. v.

Burroughs Corp., 625 F.2d 1291 (5th Cir. 1980).

205. E. Allan Farnsworth, Contracts 326-27 (2d ed. 1990). See generally U.C.C. § 2-

302 (1995); Restatement (Second) of Contracts § 208 (1979).

206. Farnsworth, supra note 205, at 3 13-14 & n. 16; see also John Deere Leasing Co. v.
Blubaugh, 636 F. Supp. 1569 (D. Kan. 1986).

207. Robert A. Hillman, Debunking Some Myths About Unconscionability: A New

Framework For U.C.C Section 2-3002, 67 CORNELL L. REV. 1, 9 (1981).

208. HUNTER, supra note 204, at 19:60-61

.



934 INDIANA LAW REVIEW [Vol. 31:897

party is unaware of the waiver or it is not a result of true bargaining and
negotiation.

Thus, there are a number of contract law doctrines that may limit
enforceability of waivers of bankruptcy privileges. These doctrines should be

applied liberally to waivers of bankruptcy privileges so that only truly bargained

for waivers of which parties are aware are enforced.

Conclusion

Contractual waivers of bankruptcy privileges are nothing more than waivers
of statutory privileges. Whether such waivers can be enforced is a matter of
contract law. The law of contract allows the waiver of statutory rights and
privileges so long as the statute does not compel invalidation of the clause based

on a strong, well defined, and dominant public policy in existing law and
precedent enacted for the benefit of the general public. The case law in
bankruptcy relating to this issue does not, however, speak in the terms ofthe law

of contractual waivers of statutory privileges.

Instead, the bankruptcy case law speaks its own language. It does not treat
the issue as one of contract law but rather as another special issue of bankruptcy

law. In this connection a mythology has arisen surrounding waivers of

bankruptcy privileges. This mythology, which is composed of some utter
falsities and a number of half-truths, has been used to sustain a theory that
bankruptcy privileges are special creatures not subject to ordinary rules

concerning waiver of statutory privileges. It is this mythology that has led to the

generally accepted idea that bankruptcy privileges may not be waived. The
elements of this mythology are, however, unsupportable. The issue of waiver of

bankruptcy privileges is just another contract question that should be answered

under contract principles. A major point of this Article is to expose the
mythology of the law in this area.

Whether to enforce a waiver of a bankruptcy privilege should be determined

under the contract law standard for the enforcement of such waivers. The
formulation of the standard settled upon here is that, for a waiver of a statutory

privilege to be unenforceable, one must show that there is in existing law and
precedent a strong, well defined and dominant public policy for the benefit of the

general public supporting the privilege sought to be waived. Moreover, one must

demonstrate that invalidation of this waiver is compelled by the language of the

statute. Under this standard it has been shown that there is no strong public
policy of the kind necessary to prevent the waiver of any bankruptcy privileges,

including the ability to file bankruptcy itself. Moreover, even if there were a

strong policy in favor of not allowing waivers, it can be potently argued that the

bankruptcy law is not intended for the benefit of the general public. Further, the

language of the statute does not compel a particular conclusion on this issue. As
a result, contractual waivers of bankruptcy privileges should, as a general

proposition, be enforced.

This is not to say that all waivers of bankruptcy privileges should be

enforced. The limitations on enforcement of onerous contract provisions

imposed by contract law, like the unconscionability doctrine and law relating to



1 998] WAIVERS OF BANKRUPTCY PRIVILEGES 93 5

adhesion contracts, must be honored. In this way, only bargained for waivers

should be enforced. As a result, it might well be found that such waivers are
generally unenforceable in consumer contracts. This result, however, requires

case law development.

Thus, with the mythology burst, waivers of bankruptcy privileges should be

viewed as contract questions and such waivers should be permitted in
circumstances where waivers of other statutory privileges are permitted.