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Understanding single asset real estate debtor filing requirements

For many businesses in Salem that may be struggling with debt, a Chapter 11 bankruptcy may offer an ideal solution for getting out from underneath those liabilities while remaining in business. For those debtors against whom creditors are preparing to commence action, filing for bankruptcy offers a reprieve from such action from the moment their petitions are filed. This period of injunctive relief is known as an automatic stay. However, there may be certain cases where an automatic stay does not provide the protection that a business may have been hoping for.

An example of this would be in the case of a single asset real estate debtor. According to the United States Courts website, the U.S. Bankruptcy Code recognizes a single property or project from which a debtor derives substantially all of his or her gross income and on which he or she has no other substantial business dealings as being single asset real estate. This definition does not apply to family farmers, or residential properties with less than four units. A good example of a SARE debtor may be a business entity that owns and leases a single commercial location whose income comes primarily from lease payments. If, however, that company owned the property and also ran its own business out of it, it may not meet the definition of a SARE debtor.

In Section 362(d) of the Bankruptcy Code, it states that in order to earn injunctive relief from secured creditors, a SARE debtor must present a valid reorganization plan within 90 days of filing its petition with the court. That, or it must resume making its monthly interest payments at its non-default rate. If neither of those requirements are met, a creditor can pursue foreclosure on the property.  

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