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What are the Benefits of a Single Asset Real Estate case? (Third in a Series of Three)

Posted on Mar 22, 2010 in Business Bankruptcy, Chapter 11, Illinois, Real Estate, Uncategorized, Wisconsin

Now that we have explored the characteristics of a Single Asset Real Estate debtor in bankruptcy (see the First and Second blawgs in this series), it is time to look at the advantages of filing a chapter 11 case for a Single Asset Real Estate debtor.  

One significant benefit of a Single Asset Real Estate entity filing chapter 11 is the automatic stay.  The Bankruptcy Code provides that all foreclosure and collection activity must stop when a debtor files bankruptcy. If your company  is facing an imminent Motion to Appoint a Receiver or a Foreclosure Sale in a state court case, filing chapter 11 will temporarily stop the state court action from moving forward. 

The automatic stay will also provide the Single Asset Real Estate debtor some flexibility to develop cash if the property has tenants and is producing cash flow or rental income.  If there is sufficient cash flow, a Single Asset Real Estate Debtor will be more likely to develop cash when the value of the loan is worth less than the value of the property.    

While the automatic stay is beneficial for many debtors, the automatic stay has a limited shelf-life in a Single Asset Real Estate case. The automatic stay is limited to a 90-day period in Single Asset Real Estate case.  At the conclusion of the 90-day period, the Single Asset Real Estate debtor must propose a plan of reorganization or begin to tender monthly payments due to the lender(s) of the debtor. 

Lakelaw understands how to plan so this deadline can work in favor your chapter 11 case.  The key to success is pre-bankruptcy planning.  Through planning prior to filing for bankruptcy, Lakelaw can prepare for the difficulties presented by the limited application of the automatic stay.

Despite the abbreviated period for the application of the automatic stay, a Single Asset Real Estate case still has  benefits. Generally, with proper planning, a Single Asset Real Estate debtor may be able to successfully cram down a lender.  A cram down, under the Bankruptcy Code, allows a debtor to modify the monthly payments (and the amount of principal) due to a lender under  loan.  If a Single Asset Real Estate debtor can propose a feasible chapter 11 plan of reorganization, then it is more than likely that the entity can:

  • Reduce the monthly payments which may have caused the entity problems prior to filing bankruptcy; and
  • Allow the debtor (or its investors) to enjoy any appreciation in the value of the property after the chapter 11 plan is confirmed.

To be clear, while there are some risk in filing a Single Asset Real Estate case; with the right counsel, strategy and planning, there are many rewards which may be realized by an entity (or its investors).  

Lakelaw appreciates and understands the complexities of the Bankruptcy process.  We can help you or your company successfully maneuver through the bankruptcy process.  With over 35 years of experience in evaluating Single Asset Real Estate cases, Lakelaw can identify what is the best option for your company.  Lakelaw serves clients with financial restructuring needs throughout Illinois and Wisconsin.


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