Plenty of businesses are feeling the pinch of decreased sales due to COVID-19, and that has many business owners facing the prospect of declaring bankruptcy. It’s important to remember, however, that despite the stigma bankruptcy is a tool designed to help people struggling with debt. Let’s take a look at SARE entities and their options for navigating bankruptcy proceedings.
What is a SARE Entity?
Single Asset Real Estate (SARE) entities are real estate companies that own a single property and draw all their income from the renting of that property. This can include housing landlords, warehouse owners, and hotel owners. Not all property owners can be considered SARE entities, however. If a property draws an income from sources aside from rent, such as through restaurants, gift shops, or sporting activities, then they lose this financial status
How Can SARE Debtors Survive Bankruptcy?
If COVID-19 has impacted a SARE entity’s income and they are unable to pay their debts, then they can declare Chapter 11 bankruptcy. Contrary to popular belief bankruptcy does not erase a business’s debt. Instead, the business enters a legal process where they restructure existing debts with the lender(s) to pay them back with assets and future installments. SARE entities have a number of tools available to them when they declare bankruptcy. This includes the option to “cram down” their financing solutions to lenders who do not agree with the repayment plan, so long as they can show that their plan is fair, equitable, and in good faith.
SARE entities should also be aware of how secured their lenders are, as the entity may not be accountable for post-petition interest and attorney’s fees if the secured amount is lower than the debts that the SARE entity owes, then.
COVID-19 is affecting small business revenue all across the world, but there are options to help your company survive. If you’re in need of legal experience and solutions, reach out to the team at HooverSlovacek LLP today by calling our office at (713) 977-8686 or visiting our website whenever you need it.
