Chapter 11 and Relief from Stay: Special Rules for Single Asset Real Estate Debtor

As discussed in a previous post, the automatic stay prevents creditors from pursuing a debtor for payment or from foreclosing on a debtor's property.

However, the automatic stay is not full proof.  Creditors may file a motion with the bankruptcy court for relief from the automatic stay.  If the motion is granted, the stay will not longer apply to that particular creditor and as such the creditor may resume collection efforts against the debtor, including foreclosure.

In a Chapter 11 case, if the debtor's only asset is a single piece of real property, there are special rules which apply.  This type of Chapter 11 case is terms a Single Asset Real Estate case.

One of the special rules in these types of cases is that, within 90 days of the filing of the case, the debtor must either propose a Plan of reorganization (that is, propose how it will handle its debts) or begin paying its secured creditors at least the interest owed to them.  If the debtor fails to do so within the 90 days, the secured creditor (the mortgage company, for example) has a right to relief from stay.  These rules are provided in 11 USC §362(d)(3).

As you can see, Chapter 11 cases are complex.  It is therefore extremely important for a debtor to have experienced Chapter 11 counsel.  An attorney that only handles Chapter 7 and Chapter 13 cases will likely not know these, and other special rules which apply to Chapter 11 cases.  An oversight of §362(d)(3) by an inexperienced attorney can be very costly to a debtor trying to reorganize his debts.

Shalem Shem-Tov
Netzah & Shem-Tov,
www.netshemlaw.com
818-995-4200