Single Asset Real Estate and the Bankruptcy Abuse and Consumer Protection Act
By Janet Flaccus · October 14, 2007 · 2007 Ark. L. Notes
In categories: Bankruptcy, Business Law
This article discusses the single-asset bankruptcy change made by the Bankruptcy Abuse and Consumer Protection Act. I mentioned this change at the 2006 Mid-Year Meetings in Memphis (at the end of my talk and not related to it) and have not seen any discussion of this issue since. This may be because real estate is outside my interests usually. I am a personal property professor. Real estate and I almost never cross paths. However, after talking with Carl Circo, who joined our faculty in 2003, I think this may be one of the bigger changes that Congress made in 2005. It also might be especially timely given the real-estate down turn in which we now lie. Bankruptcy is probably looming in many real estate venture futures.
The statutory change was a simple one. It was a change in the definition of Asingle asset real estate@ in section 101(51B) of the Bankruptcy Code. This section used to say that it was limited to single-asset real estate with noncontingent, liquidated secured debts under four million dollars. Carl said that during his long practice in Kansas City many of the single-asset real estate ventures he saw had secured debts of more than four million dollars. You can see from the language in the Code today that the Bankruptcy Abuse and Consumer Protection Act took out the four million dollar limitation and did not substitute any other monetary limitation. The section now reads:
The term “single asset real estate” means real property constituting a single property or project, other than residential real property with fewer than 4 residential units, which generates substantially all of the gross income of a debtor who is not a family farmer and on which no substantial business is being conducted by a debtor other than the business of operating the real property and activities incidental.