The "Devil's Dictionary" is a quick-reference guide for commercial lenders and other restructuring professionals. In this series, we highlight many of the buzz words found in the Dictionary and used in today's bankruptcy arena.

SPRINGING RECOURSE: 

Personal liability of the borrower on an otherwise nonrecourse debt, triggered by the occurrence of a stated contingency such as a bankruptcy filing by the borrower. Section 365(e)(1) invalidates ipso facto clauses in executory contracts and unexpired leases, but a debt instrument qualifies as neither. Nevertheless, in some instances bankruptcy courts have refused to enforce ipso facto clauses beyond the context of executory contracts and unexpired leases. Whether a court would enforce a springing recourse provision triggered by the borrower’s bankruptcy filing is not a settled question of law. Springing recourse is unlike a Springing Guaranty where the borrower’s filing creates recourse for a third party guarantor and not the borrower/debtor itself. Note also that such a “springing recourse” provision is sometimes unnecessary in Chapter 11 because, under certain circumstances, Section 1111(b)(1)(A) converts nonrecourse debt to recourse for purposes of a Chapter 11 case. But Section 1111 does not confer that benefit in a Chapter 7 or Chapter 13 case. 

Personal liability of the borrower on an otherwise nonrecourse debt, triggered by the occurrence of a stated contingency such as a bankruptcy filing by the borrower. Section 365(e)(1) invalidates ipso facto clauses in executory contracts and unexpired leases, but a debt instrument qualifies as neither. Nevertheless, in some instances bankruptcy courts have refused to enforce ipso facto clauses beyond the context of executory contracts and unexpired leases. Whether a court would enforce a springing recourse provision triggered by the borrower’s bankruptcy filing is not a settled question of law. Springing recourse is unlike a Springing Guaranty where the borrower’s filing creates recourse for a third party guarantor and not the borrower/debtor itself. Note also that such a “springing recourse” provision is sometimes unnecessary in Chapter 11 because, under certain circumstances, Section 1111(b)(1)(A) converts nonrecourse debt to recourse for purposes of a Chapter 11 case. But Section 1111 does not confer that benefit in a Chapter 7 or Chapter 13 case.

See also Exploding Guaranty, Ipso Facto Clause/Provision, Special (or Single) Purpose Bankruptcy Remote Entity, Springing Guaranty. 


The "Devil's Dictionary" is an excellent reference tool that reflects the collective wisdom of its four authors, Brett Anders, Jim Bird, David Ferguson, Dan Flanigan, and digital editor, Christopher Ward, who have a combined total of more than 130 years working in the forefront of real estate and other commercial finance, loan enforcement, financial restructuring and bankruptcy law.