## Facts

- Jamaica House, Inc. operated a restaurant and lodging business and filed a Chapter 11 petition on January 6, 1983.
- The debtor’s schedules listed total liabilities of $120,285.78 and assets of $177,700.00, but the debtor had not yet filed a disclosure statement or plan.
- The debtor’s main asset was the real estate used for the inn/restaurant, together with fixtures, equipment, and inventory.
- Schedule valuations placed the real estate at about $150,000 and the personal property at about $16,000; the debtor’s president testified an appraisal valued the real estate plus contents at $166,000, and that testimony was not disputed.
- Green Mountain Bank held a first mortgage on the real estate with $90,000 principal outstanding; no interest had been paid since 1981.
- Other asserted secured items included an attachment in favor of Heaslip Fuels for $1,500 and real estate taxes owed to the Town of Jamaica of $1,740.82, both treated as liens against the property.
- The debtor also owed federal income taxes (about $10,000) and Vermont rooms and meals taxes (about $8,000), but there was no evidence introduced that those taxes were liens against the debtor’s property.
- After the bankruptcy filing imposed the automatic stay, the Bank filed a complaint seeking relief from stay under 11 U.S.C. § 362(d), arguing that the stay was harming its secured position because tax obligations were increasing and eroding potential recovery.
- At the hearing, evidence showed the property insurance policy had expired; the debtor’s president agreed to pay the premium within ten days.

## Issues

1. Under 11 U.S.C. § 362(d)(2), was the Bank entitled to relief from the automatic stay because the debtor lacked equity in the property and the property was not necessary to an effective reorganization?
2. Under 11 U.S.C. § 362(d)(1), did “cause” exist to lift or modify the stay due to lack of adequate protection of the Bank’s interest, given unpaid interest, accumulating taxes, and the insurance lapse?

## Decision

- The court denied Green Mountain Bank’s request for relief from the automatic stay.
- The court found a substantial equity cushion: the liens proven against the property (the $90,000 mortgage principal, the $1,500 attachment, and $1,740.82 in real estate taxes) totaled $93,240.82, well below the undisputed $166,000 valuation.
- Because the debtor’s business was operating an inn and restaurant on the property, the court found the property was necessary for reorganization, defeating relief under § 362(d)(2).
- The court rejected the Bank’s argument that growing tax debts required stay relief where the record did not establish that the federal and state taxes were liens against the property.
- The court concluded the Bank was adequately protected under § 362(d)(1), with the equity cushion providing protection against a decline in collateral value or loss on liquidation, and declined to terminate or modify the stay at that stage of the case.
- The debtor’s agreement to cure the insurance lapse by paying the premium within ten days addressed the immediate risk associated with uninsured collateral.

## Legal Principles

- Under 11 U.S.C. § 362(d), the court must grant relief from the automatic stay if either: (1) there is “cause,” including lack of adequate protection of a secured creditor’s interest; or (2) the debtor lacks equity in the property and the property is not necessary to an effective reorganization.
- For § 362(d)(2), a secured creditor seeking stay relief must show both absence of equity and lack of necessity to an effective reorganization; proof of debtor equity in the collateral defeats relief under that subsection.
- A meaningful “equity cushion” between collateral value and the amount of valid liens can constitute adequate protection for purposes of § 362(d)(1), especially early in a Chapter 11 case.
- Assertions that taxes or other obligations are impairing a secured creditor’s position carry less weight without proof that such obligations create liens senior to, or competing with, the creditor’s interest in the collateral.
- A secured creditor’s nonpayment of interest, by itself, does not require stay relief when the creditor remains protected by collateral value exceeding secured debt and proven liens.

## Conclusion

*In re Jamaica House, Inc.* held that Green Mountain Bank was not entitled to relief from the automatic stay because the debtor had substantial equity in the inn/restaurant property, the property was necessary to any reorganization effort, and the Bank’s interest was adequately protected by the equity cushion despite unpaid interest, asserted tax debts, and a temporary insurance lapse that the debtor agreed to cure.


In re Jamaica House, Inc., 31 B.R. 192 (1983)