Home New Cases Chip’s Family Restaurant Seeks to Determine Fair Market Value of its Assets and Strip Liens Not Supported By Equity in Property, Sues American Express National Bank, US Small Business Administration, and Others

Chip’s Family Restaurant Seeks to Determine Fair Market Value of its Assets and Strip Liens Not Supported By Equity in Property, Sues American Express National Bank, US Small Business Administration, and Others

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March 15, 2021, District of Nevada - Chip’s Southington, LLC, d/b/a Chip’s Family Restaurant (the "Debtor and Debtor-in-possession") initiated an adversary proceeding under Fed. R. Bankr. P. 7001(2) and (9) to determine the validity, priority, and extent of liens filed by the Defendants, American Express National Bank, US Small Business Administration (SBA), and Celtic Bank Corporation against the Debtor. 

The Debtor seeks to determine the fair market value of its assets and strip liens not supported by the equity in property according to 11 U.S.C. § 506(a) and (d) of the Bankruptcy Code. 

The Debtor is one of the five locations of “Chip’s Family Restaurant,” a local family-friendly breakfast and brunch restaurant. According to the complaint, the Debtor’s assets are fully encumbered by the liens of its primary secured lender, M&T Bank, and Business Backer. Thus, the Debtor contends that all other lien creditors listed on Schedule D of the Debtor’s bankruptcy schedules should have their liens vacated by operation of Bankruptcy Code § 506(d). 

Specifically, the complaint contends that M&T Bank held a first position lien on all of the Debtor’s assets for $1,038,134.51. Debtor scheduled the claim amount for Celtic as $0.00 and as “disputed”; the claim for Business Backer as $124,478.69, for AmEx as $155,273.18 and as “disputed” and for the SBA as $149,900.00. 

The Debtor argues that the secured claims of M&T Bank and Business Backer fully encumber all assets of the Debtor, such that all creditors subordinate to M&T Bank and Business Backer should not be treated as “secured claims”. According to the Debtor, after subtracting the amount of prior encumbrances, the claims (be they allowed or disputed claims) of creditors subordinate to M&T Bank and Business Backer are unsecured to the extent of their balance. 

The complaint reasons that a lien on the property of the estate is treated as a secured claim only to the extent that there is equity available in the collateral to support the claim. Thus, to the extent that a lien on estate property is not supported by the equity in the collateral, the lien is void, with certain exceptions.

Accordingly, the Debtor requests the court to treat the claims of the creditors subordinate to M&T Bank and Business Backer as unsecured claims and vacate and void the liens and encumbrances of all Defendants with a lower priority than Business Backer.

Jones & Associates