A Single Asset Real Estate case usually involves a commercial building, apartment complex, or even vacant land.  Generally, a Single Asset Real Estate case concerns a piece of property, or a project, owned by an an entity (a limited partnership, or more commonly now, a limited liability company).  The entity’s sole purpose is to operate the property with funds generated by the property.  

The most important creditor in a Single Asset Real Estate case is the entity’s mortgage lender.  In some deals, the entity has secured financing from second-tier or mezzanine lenders.  The Singe Asset Real Estate entity may also owe debts for taxes, utilities, or property management fees. 

Under the Bankruptcy Code, a Single Asset Real Estate case has the following three characteristics:

• a single piece of real property or project (excluding residential property with less than four units);
• which generates substantially all of the income for the debtor (who is not a family farmer); and
• the company (or debtor) operates no substantial business other than operating the property or project.

A Single Asset Real Estate case is not limited to small projects.  It can include large commercial properties.  Even a large shopping center worth millions of dollars could be Single Asset Real Estate case.  If you are the member or owner of a Single Asset Real Estate entity, there are benefits to filing chapter 11 case.  However, you have a more difficult road than a typical debtor in chapter 11.  Our third and final blog in this series will explore the benefits and difficulties associated with a Single Asset Real Estate case.  

We at Lakelaw know the details of Chapter 11.  David Leibowitz even taught the course on Real Estate Bankruptcy Law to graduate law students at the LL M level at John Marshall Law School.  He was recommended for the job there by former Bankruptcy Judge Ronald Barliant as a result of his practice before him.  Jonathan Brand has had a wide-range of exposure to real estate cases not only at Lakelaw but also during his tenure as a law clerk with two different bankruptcy courts.  Lakelaw is available to answer any of your concerns related to Single Asset Real Estate cases or your other bankruptcy needs.

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Clients ask, what is a Single Asset Real Estate bankruptcy case?  If you or your company owns a single building or piece of land, cannot pay the lender and decide to file bankruptcy, then your probably have a “Single Asset Real Estate” case.  Special rules apply if you are thinking about filing bankruptcy under Chapter 11.  Lakelaw knows the rules related to Single Asset Real Estate cases and regularly represents people and businesses facing this situation.

A Single Asset Real Estate case can work for a property owner even in these troubled times.  But you have to understand the rules, parameters and guidelines if you want a Single Asset Real Estate case to work for you.  Chapter 11 can help you save your property.  However, Congress amended the Bankruptcy Code to make it easier for banks to foreclose on your property.  They convinced Congress that a company held just to own one parcel of real estate had no real reason to survive.  Congress bought this argument – hook, line and sinker.  So, Single Asset Real Estate cases are challenging, but not necessarily dead on arrival.

We at Lakelaw know the details of Chapter 11.  David Leibowitz even taught the course on Real Estate Bankruptcy Law to graduate law students at the LL M level at John Marshall Law School.  He was recommended for the job there by former Bankruptcy Judge Ronald Barliant as a result of his practice before him.  Jonathan Brand has had exposure to real estate cases not only at Lakelaw but also during his tenure as a law clerk with two different bankruptcy courts.

There are many ways that a Single Asset Real Estate case can fail.  But if you know the rules of the road, you can take advantage of the benefits associated with filing a Single Asset Real Estate case and have your best chance of success.  Let Lakelaw navigate your Single Asset Real Estate case to a road towards recovery.

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When we file a chapter 11 case, one of the first questions our clients ask is whether they can use the cash they have in the bank and the cash they get when collecting their accounts receivable.

Usually, the client has a bank or other creditor which holds a lien on substantially all of their assets.  Property like inventory, machinery and equipment and the like is called “hard collateral”.  Such items can be used and sold in the ordinary course of business in chapter 11. 

Liquid assets, like cash, bank accounts, and accounts receivable, however, are a different matter.  These are called “cash collateral”.  And cash collateral may not be used over the objection of a secured party without a court order.  This order is called the “cash collateral order”.  Typically, in order to use cash collateral, the debtor must assure the creditor that the value of the collateral will not decline during the course of bankruptcy.  This is called “adequate protection”.  And in addition, if the creditor is fully secured, the creditor is entitled to interest for the use of collateral during bankruptcy.  The creditor is also entitled to attorneys fees to the extent provided by contract.  

Use of cash collateral in chapter 11 is typically conditioned upon following an agreed upon budget.  Any excess cash can be swept into an account for the benefit of the creditor to the extent necessary to provide the creditor with adequate protection.  The creditor can be given a replacement lien in post-petition accounts receivable to provide additional adequate protection for loss of pre-petition accounts receivable.

If there is debtor in possession financing, cash collateral issues can become more complicated.  But that is a topic for another entry at another time.

In the meantime, if you are a business debtor in chapter 11, don’t even think about using cash collateral without consent of the bank or a cash collateral order approved and entered by the Bankruptcy Court.

Watch for more information about chapter 11 and chapter 11 practice here at Lakelaw.

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My client called and was frantic.  “The bank took all the money from my account – I can’t make payroll and my checks are bouncing.  Can they do that?

This is called “set-off”.  And yes, the bank can do that.  

Here’s the idea.  If you have money in the bank, it is money that the bank owes you.  But suppose you also owe money to the same bank.  This typically happens to businesses which have loans with a bank and naturally maintain their checking account with the bank.  So the debt you owe the bank – say a business loan – may be offset by a debt that the bank owes you – your money in the bank.

If you are in default with your bank under your loan agreement, even if you simply haven’t abided by various covenants or agreements in your loan agreement with the bank, the bank has the right to enforce its agreement with you.

For example, the bank has the right to set off the money in your checking account against the debt you owe the bank.  This can be mighty inconvenient.  Your employees won’t get paid and your checks will bounce.  The bank also would have the right to enforce its security agreements with you – for example collect accounts receivable directly from your customers or even sell your assets at auction.

Chapter 11 of the bankruptcy code is your strongest response to these actions.

You’ll need a plan.  You’ll need financing to operate while you are in reorganization.  And you’ll need good legal counsel – like Lakelaw – to represent you in your chapter 11 case.

If your business can recover, you owe it to yourself to try.  Otherwise, your business and life work will face liquidation and a rapid demise.

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Chapter 11 is for people, not just corporations.  If a person does not pass the “means test”, chapter 7 is out of the question.  And if the person’s debts, either secured or unsecured are above the limit for chapter 13, as is often the case, chapter 13 is not allowed either.  These limits vary with inflation but now are something in excess of $300,000 of unsecured debt and something in excess of $1.1 million in secured debt.  Business debtors might file a chapter 7 case.  However, what if an individual in business wants to get bankruptcy relief and has property he or she would like to keep, like, for example, a sole propriertorship or an owner-operated bed and breakfast involving some valuable real estate?

Chapter 11 is the answer for this type of debtor.  

Some aspects of chapter 11 for people are similar to chapter 13.

• All income after expenses must be paid to creditors for the duration of the case.
• You must file a plan approved by the Court.
• You cannot discharge “domestic support obligations”, recent income tax claims and certain other types of claims

There are differences as well:

•  In chapter 11, there is typically no trustee.   You, the debtor, remain in possession of your assets subject to court supervision
• You must file monthly operating reports with the United States Trustee
• You must pay quarterly fees to the United States Trustee
• You must file a plan and disclosure statement
• The plan must be approved by the required number and amount of claims to be confirmed.
• The plan might be modified after confirmation on the motion of a creditor.
• Chapter 11 costs significantly more than a chapter 13 case.

In these times, it is important to seek counsel from those with experience.  We at Lakelaw have handled chapter 11 cases for corporations and individuals under the Bankruptcy Code for over 35 years.  We can put our experience to work for you.  For more information about Chapter 11, see “About Bankruptcy – Highly Detailed” and navigate to page 30.

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When an employer files bankruptcy, it is vital that employees take steps to protect themselves.  Illinois and Wisconsin companies have been filing for bankruptcy.  Here are some of the biggest lately:

• Tribune Company
• Hart Schaffner & Marx
• Kimball Hill Homes
• Wisconsin Steel Industries
• Circuit City

It’s certain that more will file.

What do you do as an employee to protect yourself?  Here are some important steps to take:

• Verify your rights under the Summary Plan Description of your pension or profit sharing plan
• Confirm that the company is continuing to administer your benefit plan while in bankruptcy
• If your company has filed for bankruptcy under chapter 7, get in touch with the chapter 7 trustee and be sure that the trustee is taking over the plan as required by law
• File a proof of claim to be sure you get the priority wage claim to which you are entitled
• If your plant has closed without the benefits of the WARN Act, file a claim in the bankruptcy case and contact the Department of Labor.

The US Department of Labor has published a fact sheet for employees whose companies have gone into bankruptcy.

Lakelaw helps employees in Illinois and Wisconsin whose employees have gone into bankruptcy.   If your company filed a bankruptcy case somewhere other than Illinois, you can find attorneys in that area at Bankruptcy Law Network.

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