Presenting Post-Dated Checks after the Bankruptcy
By Robert Norman
May a vendor present a post-dated check for payment
after a debtor has filed bankruptcy? Although most credit professionals
who are familiar with bankruptcy law and the automatic stay provision
would likely respond �No,� a bankruptcy court in the Western District
of Missouri has stated ot herwise. The bankruptcy court in In re
Thomas1 held that the presentment of
postdated checks upon a drawee bank for payment after the debtor
filed a Chapter 7 petition was not a violation of the automatic stay.
The court reasoned that since the holder of the check was entitled
to enforce the negotiable instrument under applicable law there was
not automatic stay violation.2 The court
went on to find that, although the transfer was not a violation of
the automatic stay, the transfer of the funds from the debtor�s checking
account was subject to avoidance and recoverable from the creditor.3
In re Thomas the debtor obtained four separate payday
loans from the creditor, Money Mart. In exchange for cash, the debtor
gave the creditor several post-dated checks. The debtor filed bankruptcy
prior to the dates indicated on the post-dated checks. Moreover,
the debtor�s counsel and the court both notified the creditor of
the bankruptcy filing. Notwithstanding, the creditor presented the
post-dated checks to the debtor�s bank which were honored almost
one month after the bankruptcy filing. After the checks were cashed,
the debtor asserted that the creditor violated the automatic stay
by cashing the post-dated checks after the debtor filed bankruptcy.
The debtor asserted that the creditor was subject to actual damages
and punitive damages because of the willful violation of the automatic
stay by the creditor.
Pursuant to Bankruptcy Code 11 U.S. C. � 362, a petition
filed under � 301 operates as a stay, applicable to, among other
things, �any act to obtain possession of property of the estate or
of property from the estate or to exercise control over property
of the estate� and �any act to collect, assess, or recover a claim
against the debtor that arose before the commencement of the case
under this title.� Essentially, debt collection efforts must stop
on the filing of the bankruptcy petition.
However, � 362(b) of the Bankruptcy Code contains several
exceptions to the automatic stay, including � 362(b)(11) which provides
that �[t]he filing of a petition under � 301�of this title�does not
operate as a stay under subsection (a) of this section of the presentment
of a negotiable instrument and the giving of notice of and protesting
dishonor of such an instrument.�4Given
the plain language of the Bankruptcy Code, the court in In re Thomas
was asked to determine whether the creditor was unaffected by the
automatic stay because of the exception enumerated above.
The bankruptcy court noted that the post-dated checks
were �negotiable instruments� and that �presentment� is defined as �a
demand by or on behalf of a person entitled to enforce an instrument��5 The
good news for the creditor professional is that the court found that
the creditor was the holder of the instruments and was entitled to
enforce the instruments under the exception to the automatic stay
for such instruments. Although the checks were written prior to the
petition filing, the drawee bank honored the checks in good faith,
and the trustee did not attempt to avoid the transfer, the court
noted that the debtor�s checking account balance became property
of the estate on the date of the petition, and that the checks were
honored by the debtor�s bank after that time. As such, after proper
a demand, the creditor was required to turn over the funds, however,
the creditor was not subject to punitive damages because there was
no violation of the automatic stay.
When considering whether to accept a post-dated check,
in addition to the bankruptcy provisions above, the credit professional
should also consider the following from the Uniform Commercial Code.
Under section 4-401 of the Uniform Commercial Code,
a post-dated check is permissible so long as the drawee has given
the financial institution notice of the postdated check and has described
the postdated check with �reasonable certainty.� In order to assure
that a post-dated check will not be cashed early, notice to the bank
must be received by the financial institution so as to provide them
with a reasonable opport unity to respond to the request. Otherwise,
the bank may cash the check and hold the drawee responsible.
To recap, according to the court in In re Thomas, the
creditor may present the post-dated check after the bankruptcy wit
hout risking violation of the automatic stay, however, the proceeds
from the post-dated check may be subject to avoidance as a post-petition
transfer of property of the estate. Additionally, a financial institution
may honor a post-dated check early, without recourse, unless proper
notice was given to the financial institution.
1. 2004 WL 1354301 (Bankr. W.D.Mo. 2004).
2. Id at **2.
3. Id.at **5.
4. (emphasis added).
5. 2004 WL 1354301, **2 (Bankr. W.D. Mo. 2004).
Reprinted by permission from Trade Vendor Quarterly Blakeley & Blakeley
LLP Fall 04