Few words in real estate transactions inspire as much fear as “time is of the essence.” If a closing date or other deadline is time-is-of-the-essence (TOTE), neither party can postpone the closing or extend the deadline without the other party's consent. So if a buyer is unable to timely close (often because they are unable to obtain financing) and the seller is unwilling to postpone the closing, the buyer may forfeit its security deposit and lose a valuable business opportunity. The consequences for failing to meet a TOTE closing are harsh and seemingly unavoidable.

Not so if the buyer files for bankruptcy before the closing date. The Bankruptcy Code allows a debtor/buyer to extend a TOTE deadline to 60 days after a bankruptcy filing. Under §108(b) of the Bankruptcy Code, if an agreement, court order, or nonbankruptcy law sets a deadline “within which the debtor … may file any pleading, demand, notice, or proof of claim or loss, cure a default, or perform any other similar act, and such period has not expired before the date of the filing of the petition,” then the deadline to file, cure, or perform is extended to 60 days after the filing of the bankruptcy petition. Bankruptcy courts, including those in New York, have held that a TOTE deadline to close (or perform any other act) under a contract may be extended by §108(b) of the Bankruptcy Code to 60 days after the date of the filing of the bankruptcy petition.¹

What if 60 days isn't enough time? If a purchaser files for bankruptcy in New Jersey, the TOTE may be extended much later in time than 60 days. The Bankruptcy Court for the District of New Jersey has held that a TOTE deadline may be satisfied any time before confirmation of a Chapter 11 plan, which may occur years after a bankruptcy is filed.² However, bankruptcy courts in New York have repeatedly rejected the reasoning that underlies the New Jersey bankruptcy court's decision (for you bankruptcy practitioners, it has to do with the principal that a default that is incurable because it is a “historical fact” generally precludes assumption).³ No other bankruptcy court opinion has permitted a debtor/buyer to meet a TOTE deadline beyond the 60-day period.