Brief Fact Summary. F.T.L., Inc., (Petitioner), filed a voluntary bankruptcy petition under chapter11. Crestar Bank, (Respondent), the primary secured creditor of Petitioner, has perfected a judgment lien against the residence Frank Lash, Jr. and Robyn Lash, officers of Petitioner and personal guarantors of the debt. Frank Lash Jr., and Robyn Lash have requested an automatic stay of judicial proceedings and enforcement of judgments pursuant to 11 U.S.C. 362
Synopsis of Rule of Law. Where the identity of the debtor and the third party guarantor are inexorably interwoven so that the debtor may be said to be the real party against whom the creditor is proceeding or where proceeding against the third party would actually reduce or diminish property the debtor could otherwise make available to the creditors as a whole, a bankruptcy court may exercise equitable jurisdiction to enjoin proceedings against non-debtor third parties under 11 U.S.C. Section: 362.
Issue. Whether this case presents the “unusual circumstances” that would allow a bankruptcy court to exercise equitable jurisdiction to enjoin proceedings against non-debtor third parties under 11 U.S.C. Section: 362.
Held. Yes. Because proceeding against the third party would actually reduce or diminish property the debtor could otherwise make available to the creditors as a whole, a bankruptcy court may exercise equitable jurisdiction to enjoin proceedings against non-debtor third parties
Nothing in § 362 suggests that Congress intended that provision to strip from the creditors of a bankrupt debtor the protection they sought and received when they required a third party to guaranty the debt.
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