A recent New York court decision has cleared the way for lenders to seek recovery against non-recourse carve-out, or “bad boy,” guarantors during a pending mortgage foreclosure action if a borrower files for bankruptcy. In so doing, the court answered a question that, surprisingly, was thus far apparently unanswered in a reported decision in New York: whether New York’s “one action rule” under RPAPL § 1301 bars a lender from obtaining a money judgment against a “bad boy” guarantor for the debt if a mortgage borrower files for bankruptcy while a foreclosure action is underway.

While bankruptcy law and tort law may not seem related, it is important to know if your client has ever gone through a bankruptcy and, if so, the terms of its plan of reorganization. A recent Eighth Circuit decision confirmed the importance of knowing the ins and outs of a client’s bankruptcy and the terms of the applicable plan.