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Keywords

equitymotionburden of proofforeclosurebankruptcybad faith
hearingmotionwillbankruptcy

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In re Sky Group Intern., Inc., 108 B.R. 86, 22 Collier Bankr.Cas.2d 403

Facts

An involuntary petition under Chapter 7 was filed against Sky Group International, Inc. on October 4, 1989, by several creditors. The debtor, owned by Asher J. Sky, had acquired the Bedford Springs Hotel from a partially owned entity that had previously been placed in bankruptcy. The acquisition involved an Assumption Agreement with Union National Bank, which required the debtor to assume liabilities and pay outstanding debts by September 30, 1989. After failing to meet this obligation, UNB took possession of a Deed in Lieu of Foreclosure, but the involuntary petition was filed before the Deed was delivered.

An involuntary petition under Chapter 7 of the Bankruptcy Code was filed against Sky Group International, Inc. (hereinafter “Debtor”) on October 4, 1989 by Ralph J. Albarano & Sons, Inc., Cirrus Investment Corp., Michael Bottge, and Herb Zukerman (hereinafter “Petitioning Creditors”). Debtor is owned and controlled by Asher J. Sky (hereinafter “Sky”).

Issue

Whether Union National Bank was entitled to relief from the automatic stay, dismissal of the involuntary petition, and a declaration that the property was no longer part of the estate.

Whether Union National Bank was entitled to relief from the automatic stay, dismissal of the involuntary petition, and a declaration that the property was no longer part of the estate.

Rule

The automatic stay under 11 U.S.C. § 362 is designed to protect both the debtor and creditors, and a waiver of this stay is not self-executing under the Bankruptcy Code. Relief from stay must be authorized by the Bankruptcy Court, and the burden of proof lies with the creditor to show lack of equity in the property.

The protection accorded as a result of filing a bankruptcy petition is specifically designated, per 11 U.S.C. § 362(a), as the “automatic” stay. This alone would suggest that the stay goes into effect without regard to any further conduct by the debtor or its creditors. It can be compromised only when there exists good reason to do so.

Analysis

The court determined that UNB was adequately protected by an equity cushion exceeding $3 million, as the value of the property was found to be greater than the secured indebtedness. Additionally, the court found no evidence of bad faith in the filing of the involuntary petition, as the creditors acted out of concern for their interests. The court concluded that the debtor retained a legal and equitable interest in the property at the time of the filing.

The total secured indebtedness due and owing to UNB as of the date of the hearing is $5,116,170.00. The evidence presented at the November 29, 1989 hearing overwhelmingly indicates that the value of the property is substantially greater than this amount.

Conclusion

The court denied all of UNB's motions, ruling that the debtor was granted relief under Chapter 7 and that the property remained part of the debtor's estate.

An appropriate Order will be issued.

Who won?

Sky Group International, Inc. prevailed in the case because the court found that the creditor's motions were without merit and that the debtor retained an interest in the property.

Sky Group International, Inc. prevailed in the case because the court found that the creditor's motions were without merit and that the debtor retained an interest in the property.

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