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What To Do If A Real Party In Interest Goes Bankrupt1

By Charles L. Gholz and Kenneth D. Wilcox 2, 3


One of the sad facts of a litigatorís life is that occasionally real parties in interest go bankrupt--right in the middle of interesting, remunerative litigations.† These unfortunate occurrences pose many questions for the counsel for both (or all) parties.† However, this article focuses on what the BPAI can be induced to do.

The relevant statute is 11 USC 362(a), which reads as follows (with emphasis supplied):

(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entities, of--

(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this title, or to recover a claim against the debtor that arose before the commencement of the case under this title;

(2) the enforcement, against the debtor or against property of the estate, of a judgment obtained before the commencement of the case under this title;

(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the ...

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