Debtor’s Lack of Equity in Estate Provides No Standing to Appeal Order for Relief From Stay After Bankruptcy Court Converts Case to Chapter 7 — By Dan Lake

Aja v. Emigrant Funding Corp. (In re Aja), No. MB 10-019, 2011 Bankr. LEXIS 131 (B.A.P. 1st Cir. Jan. 19, 2011)

The United States Bankruptcy Appellate Panel for the First Circuit (BAP) dismissed an appeal by a pro se debtor challenging the Bankruptcy Court’s grant of a creditor’s motion for in rem relief from stay. The BAP ruled that the debtor lacked standing to appeal because the Bankruptcy Court had converted her case from chapter 11 to chapter 7. The BAP also rejected the debtor’s arguments as to the merits considered by the Bankruptcy Court in granting relief from stay.

The BAP first addressed the issue of whether the debtor had standing to appeal the Bankruptcy Court’s order. Persuasive authority provides that when a court converts a bankruptcy case to chapter 7, the trustee, not the debtor, represents the estate. Although there are exceptions where an appeal would provide a distribution to the debtor or would affect the debtor’s discharge, the BAP found those exceptions to be inapplicable because the debtor had no equity in the property that was subject to the motion for relief from stay.

Although the BAP dismissed the appeal for lack of standing, the panel also discussed the substantive merits of the case. Under Section 362(d)(1) of the Bankruptcy Code, relief from the automatic stay shall be granted for cause, including lack of adequate protection. Section 362(d)(2) permits a Bankruptcy Court to grant relief from the automatic stay when the debtor lacks equity in the collateral and the property is not necessary to the debtor’s reorganization. The BAP upheld the Bankruptcy Court’s finding that the debtor had no ability to reorganize, based on her failure to propose a viable reorganization plan in the case at hand and in each of the three prior bankruptcy cases filed by the limited liability company of which the debtor was the managing partner. Further, the BAP found that the debtor had no equity in the property. Accordingly, the BAP upheld the Bankruptcy Court’s grant of relief from the automatic stay.

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