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Protecting a Lender Under Chapter Eleven SARE Provisions
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Protecting a Lender Under Chapter 11 SARE Provisions

The reorganization provisions of Chapter 11 of the U.S. Bankruptcy Code can afford a business protection from creditors and an opportunity to restructure debt obligations.  

A business requesting Chapter 11 protection essentially asserts it can make it through a current financial hardship with a brief respite and perhaps some concessions from its creditors or the bankruptcy court.

Recognizing that no two businesses are identical, the Bankruptcy Code sets forth provisions for entities engaged in innumerable business types and models, including single asset real estate (SARE) debtors. See 11 U.S.C. § 326(d)(3) and 101(51B)

The SARE provisions are designed to fast-track Chapter 11 cases where the primary business activity is ownership of a single real estate asset.  The SARE provisions prevent the SARE debtor from using bankruptcy protection to simply wait out the real estate market and frustrate creditors’ foreclosure attempts.  Nonetheless, the real estate market’s sharp decline over the last several years led to greater numbers of SARE debtors seeking Chapter 11 protection.

Initially, secured lenders should ensure that a SARE debtor disclosed his SARE status to the bankruptcy court in his petition.  Savvy secured lenders and their legal counsel must then be diligent in legally limiting the amount of delay afforded the SARE debtor by seeking enforcement of the SARE deadlines, and by seeking relief when the debtor misses a filing deadline.

In the event a SARE debtor fails to declare SARE status, then it is incumbent upon the secured lender to file a SARE determination motion requesting the court enter an order determining that the debtor was a SARE debtor as of the filing date of the petition.  A successful motion will preserve the shortened filing or payment deadline imposed on the debtor by the SARE provisions, effectively running the time limits from the date the petition was filed.

If you are a secured lender, be certain you are fully informed of these and other nuances of the SARE provisions of the Bankruptcy Code.  The attorneys at Glass & Goldberg are committed to protecting creditors’ rights before, during, and after a bankruptcy proceeding. 

Glass & Goldberg provides high quality and cost-effective legal services and advice for clients in all aspects of business litigation and transactional law.  Call us at (818) 888-2220, email us at info@glassgoldberg.com, or visit us on the web at www.glassgoldberg.com to learn more about the firm and to sign up for future newsletters.

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