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UB# 63 

Underwriting Bulletin No. 63

August 8, 2000

SUBJECT: BANKRUPTCY STAYS
As a result of recent amendments to the United States Bankruptcy Laws creating an automatic stay provision for certain orders, we must now wait for the expiration of the stay period before insuring in reliance upon certain orders of a bankruptcy court, unless the Court directs otherwise in the order. These amendments will impact our underwriting practice.

As example of an underwriting practice that will be impacted by these amendments relates to insuring sales pursuant to Section 363 of the Bankruptcy Code and, specifically, our ability to rely upon Section 363(m). We have agreed in certain circumstances to insure a purchaser from the bankruptcy estate prior to the expiration of the appeal period in reliance on the mootness doctrine in this statute, provided no stay had been entered by the court. We now must wait 10 days (the stay period) before insuring in reliance on bankruptcy court orders, unless the court in its order provides for a shorter stay period and that shorter period is reasonable.

The amendments to the bankruptcy laws which became effective on December 1, 1999 provide that the following orders are automatically stayed for 10 days after entry of the order, unless the court directs otherwise:

Orders authorizing the use, sale or lease of estate property other than cash collateral (Section 363, Rule 6004 (g));
Orders confirming bankruptcy plans in Chapter 9 and Chapter 11 bankruptcies (Rule 3020 (e));
Orders granting relief from automatic stay under section 362(a) (Rule 4001 (a)(3));
Orders authorizing the trustee to assign an executory contract or unexpired lease under section 365 (f).

Rule 762 previously provided exceptions from the automatic stay of enforcement of these orders, but no longer does. There are still a few exceptions from the new automatic stay rule including:

Orders granting the right to use cash collateral; .Orders authorizing the trustee to obtain credit pursuant to section 364; .Orders providing for the assumption (but not the assignment) of executory contracts and unexpired leases;
Orders approving consensual agreements within the scope of Bankruptcy Rule 4001 (d) (agreements to provide adequate protection; to prohibit or condition the use, sale or lease of property; to modify or terminate the stay provided for in section 362; to use cash collateral; or between the debtor and an entity that has a lien or interest in property of the estate pursuant to which the entity consents to the creation of a lien senior or equal to the entity's lien or interest in the property).

The new bankruptcy stay rules do not affect the time period for filing of a notice of appeal, which remains 10 days from the entry of the order (Rule 8002). The appeals period and the stay period run concurrently. Therefore, we do not need to wait 20 days (10 days for the new bankruptcy stay and an additional 10 days for the period to virtual a notice of appeal of the bankruptcy order) before insuring in reliance on these bankruptcy court orders.

If you have any questions, contact the Underwriting Department in the Georgia State office at 404-250-1604 or 800-328-2642.

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