Case Summary:
Creditor Newtek Small Business Finance, LLC, filed a motion for relief from stay to foreclose against real property owned by the Debtor for cause, including lack of adequate protection, and on the basis that there was no equity in the property and it wasn’t necessary for an effective reorganization. Prior to the hearing, the Debtor stipulated that there was no equity in the property. But the Debtor argued that Newtek over-valued the property, and that based on an actual, lower valuation, the Debtor could afford adequate protection payments. Debtor also argued that his primary source of income derived from a business that he operated out of the property, and thus it was necessary for an effective reorganization.
The Court ruled for Newtek. First, Newtek presented testimony from an appraiser and an appraisal report establishing the value of the property as significantly higher than what the Debtor listed in its schedules. The Debtor attempted to counter Newtek’s evidence on valuation through personal testimony, but the weight of the evidence, including a bid at a recent sheriff’s sale, persuaded the Court that the true value of the property aligned with Newtek’s valuation. Thus, the amount of adequate protection that the Debtor would be required to pay was much higher than he could afford, and cause was shown in support of lifting the stay. Second, the Debtor stipulated that there was no equity in the property, and the evidence showed that the property wasn’t necessary for an effective reorganization, because no such reorganization was reasonably in prospect. More than four months into the case, the Debtor had not employed an appraiser, had not filed a disclosure statement or plan, and was delinquent on taxes. Plus, based on profit and loss statements from the Debtor and his related entities, there was no evidence that the Debtor would be able to present a plan that satisfied the best interest of creditors.
Statutes and Rules:
11 U.S.C. § 362(d)(1), (2)
Key Terms:
Adequate Protection
Automatic Stay
Equity
Valuation