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In re Craddock-Terry Shoe Corp. - 98 B.R. 250 (Bankr. W.D. Va. 1988)

Rule:

11 U.S.C.S. § 362(d) provides relief from the stay imposed by section 11 U.S.C.S. § 362(a) in either of two circumstances. The stay will be lifted for cause, including the lack of adequate protection of an interest in property of a party in interest. The stay will also be lifted with respect to a stay of an act against property under subsection (a) of this section, if -- (A) the debtor does not have an equity in such property; and (B) such property is not necessary to an effective reorganization.

Facts:

Plaintiffs extended loans to debtor. As collateral for the loan, plaintiff obtained a security interest in mailing and customer lists. As a result of cash flow problems, debtor instituted Chapter 11 bankruptcy proceedings. Pursuant to 11 U.S.C.S. § 362, a stay was imposed to prevent creditors from interfering with debtor's assets. However, plaintiffs instituted adversary proceedings and moved the court to grant relief from the stay. In alternative, the creditors sought adequate protection for collateral in which they had a security interest.

Issue:

  1. Were the creditors entitled to relief from the stay? 
  2. Were the creditors entitled to adequate protection for the collateral in which they had a security interest? 

Answer:

1) No. 2) Yes.

Conclusion:

In determining whether to grant the motion, the court considered the criteria used in evaluating whether to lift the stay: the debtor must have no equity interest in the property, and the property must not be necessary to effective reorganization. Debtor conceded that it possessed no equity interest but contended that the lists were vital to reorganization. The court ruled in debtor's favor. A customer list carried an intangible value, and the court could not prospectively rule upon whether reorganization was or was not possible under the circumstances. The debtor, however, was required to provide creditors adequate protection for any decline in the value of the collateral in which the creditors held a security interest.

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