Friday, September 22, 2006

Real Estate and Lease Provisions of BAPCPA

Real Estate and Lease Provisions of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

Residential Leases

If a landlord has a judgment of possession against a debtor involving residential property, the automatic stay does not prevent the commencement or the continuation of an eviction or ejection proceeding. Section 362(b)(22). However, if non-bankruptcy law would permit the tenant to cure the default, the debtor may stop the landlord’s eviction/ejection proceeding by curing the default within 30 days of the bankruptcy filing. Section 362(1).

Plans and Payments in Single Asset Real Estate Cases

In order for the automatic stay to remain in place in a single asset real estate case, the debtor must, within 90 days of the bankruptcy filing, file a confirmable plan or commence making monthly payments to secured creditors (at the non-default contract rate of interest) based on the value of the collateral. Section 362(d)(3). The payments can be from cash collateral/rents that secure the creditor’s claim without court approval to use the cash collateral for this purpose. The Reform Act also modifies the definition of Single Asset Real Estate in section 101(51)(B) to delete the limitation to cases with no more than $4 million in secured debt.

Lease-Related Provisions

Deadline to Assume Commercial Realty Leases: A debtor must assume or reject unexpired commercial realty leases within 120 days of a bankruptcy filing, or within 210 days of a bankruptcy filing, if the Court permits that extension. The deadline under the prior law was an initial 60 days with potentially unlimited extensions to move to assume or reject leases. Under the new bankruptcy law no extension beyond 210 days is permitted, unless the lessor consents in writing. In addition, a debtor can no longer retain the ability to assume or reject a realty lease after a plan has been confirmed. Section 365(d)(4).

Changes Concerning Cure of Non-monetary Lease Defaults: A debtor is not required to cure certain types of non-monetary defaults if cure is impossible retroactively, and thus, the cure may be prospective only.

Lease-Related Provisions

Rejection of Assumed Leases: If a debtor subsequently rejects an assumed real property lease, the landlord’s administrative expense claim is limited to the monetary obligations that would have accrued over the two years following rejection; damages beyond the two year cap are entitled to unsecured claim status, capped by Section 502(b)(6). The landlord’s administrative claim against the estate will be reduced if the landlord can recover from another source. Section 503(b)(7).

Homestead Exemption

A debtor must live within a state for 730 days to claim that state’s exemptions. Section 522 (b)(3). A debtor may not exempt an interest acquired within 1,215 days of the bankruptcy filing that exceeds the aggregate amount of $125,000 in real or personal property that the debtor uses as a residence. Section 522(q). This provision applies to all cases filed on or after April 20, 2005.

Effective Dates of the Bankruptcy Reform Act

Generally, the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 take effect on October 17, 2005, unless noted above and the provisions do not apply to pending cases.


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