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sell the encumbered real property. 6. The timing of the debtor’s filing the secured lender and filing a feasible
Unfortunately, a SARE debtor cannot demonstrates an intent to delay or plan that may be completed in a reason-
file under Subchapter V, a recently frustrate the legitimate efforts of able time.
enacted law that provides certain ben- the debtor’s secured creditors to However, even with these additional
efits to other businesses. Although a enforce their rights. requirements and challenges, SARE
debtor can elect not to file as a SARE, debtors can, in the right circumstanc-
creditors can petition the bankruptcy Conversely, a SARE debtor may es, propose feasible plans that allow
court for a finding that the debtor is demonstrate good faith by commenc- them to continue operating or relieve
a SARE. ing adequate protection payments to the business of significant debt.

Chapter 11 Imposes Stricter
Requirements on SARE Debtors
Chapter 11 also imposes stricter
requirements for a SARE debtor.
First, a SARE debtor must file a feasi-
ble Chapter 11 plan within 90 days of
the bankruptcy filing or 30 days after
the bankruptcy court finds the debtor
is a SARE, whichever is later. The
debtor must also be able to confirm
that plan within reasonable time
limits. If the SARE debtor does not
file a Chapter 11 plan within 90 days,
he or she must start making monthly
interest payments to the mortgagee
by that point, or he or she will lose the
protections of the automatic stay.
Also, because SARE cases tend
to be two-party disputes between
the SARE debtor and the mortgagee
and are often filed on the eve of
foreclosure, SARE debtors often find
themselves defending against the
dismissal of the bankruptcy case for
“bad faith.” In most jurisdictions,
dismissal of a SARE debtor’s bank-
ruptcy case for bad faith is subjective,
and courts employ a non-exclusive list
of factors in making their decision.
These factors include:

1. The debtor has only one asset (the
property).
2. The debtor has few unsecured
creditors whose claims are small
related to the secured creditors’
claims.
3. The debtor has few (or no)
employees.
4. The property is the subject of a
foreclosure action resulting from
arrearages on the debt.
5. The debtor’s financial problems
involve a dispute between the
debtor and the secured creditors
that can be resolved in the pending
state court action.

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