The right of a secured creditor to receive protection against the decrease in value of its interest in the debtor’s property during bankruptcy proceedings (§ 361, Bankruptcy Code).
What is adequate protection payment?
Adequate protection payments are payments made to a secured creditor to provide protection for the creditor’s depreciating collateral . ... A cram-down of a secured debt for a car means that instead of paying the entire amount owed on a car loan, a debtor may be able to pay only the value of the car.
What does adequate protection mean in bankruptcy?
Adequate protection refers to the protection offered to creditors of a failing business to ensure payment to a creditor through the use of business assets , essentially as collateral. ... Thus, the only protection a creditor has during the pendency of the bankruptcy is adequate protection.
What is adequate protection Chapter 11?
During the Chapter 11 case, a lender who has a lien on the debtor’s assets is entitled to “adequate protection.” Adequate protection is defined in Section 361 of the Bankruptcy Code and provides for a debtor to: (1) make a cash payment or payments to the extent the stay results in a decrease in the value of its ...
How are adequate protection payments applied?
Pre-confirmation adequate protection payments shall be applied to the principal of the creditor’s claim . Upon confirmation of this plan all secured creditors will receive adequate protection payments as set out below along with the payment of the debtor’s attorney’s fees.
What constitutes adequate protection?
The right of a secured creditor to receive protection against the decrease in value of its interest in the debtor’s property during bankruptcy proceedings (§ 361, Bankruptcy Code).
What is the adequate protection doctrine?
Adequate protection under bankruptcy refers to relief created to protect the value of a secured creditor’s lien so that it does not diminish during the bankruptcy proceeding . ... An under secured creditor may be entitled to adequate protection to ensure against the decline in value of its collateral.
How are adequate protection payments calculated?
The amount of the required adequate protection payment typically depends on the value of the collateral, the amount of the monthly loan payment, and the rules in your jurisdiction. In most cases, monthly adequate protection payments range from 1% to 1.5% of the property’s value .
Are all consumers protected by the automatic stay law?
Under Section 362 of the United States Bankruptcy Code, an automatic stay goes into effect the moment when a debtor files for bankruptcy. 1 The automatic stay applies to individuals, to businesses, and to all of the chapters of the Bankruptcy Code.
Why is a secured creditor entitled to adequate protection?
Thus, a secured creditor has the right to adequate protection if a debtor proposes to use, sell or lease property which constitutes the creditor’s collateral during the bankruptcy case or if the debtor proposes to secure post-petition borrowing by granting an interest in the secured creditor’s collateral equal or ...
Does Chapter 11 wipe out debt?
An individual filing for Chapter 11 won’t get the discharge until you have made all payments under the plan. Also, an individual cannot wipe out some types of debt , such as domestic support obligations, some taxes, and liabilities incurred through fraud. Learn more about how Chapter 11 bankruptcy works.
Who gets paid first in Chapter 11?
Secured creditors , like banks, typically get paid first in a Chapter 11 bankruptcy, followed by unsecured creditors, like bondholders and suppliers of goods and services. Stockholders are typically last in line to get paid. Not all creditors get repaid in full under a Chapter 11 bankruptcy.
Can a company survive Chapter 11?
A business going through Chapter 11 often downsizes as part of the process, but the objective is reorganization, not liquidation. Some companies don’t survive the Chapter 11 process , but many others, including household names such as Marvel Entertainment and General Motors, successfully emerge and thrive.
What is cash collateral in Chapter 11?
Cash collateral is cash and equivalents held for the benefit of creditors during Chapter 11 bankruptcy proceedings. Cash and cash equivalents include negotiable instruments, documents of title, securities, and deposit accounts.
What is a security interest in collateral?
Security interest is an enforceable legal claim or lien on collateral that has been pledged , usually to obtain a loan. The borrower provides the lender with a security interest in certain assets, which gives the lender the right to repossess all or part of the property if the borrower stops making loan payments.
What is an equity cushion?
Equity Cushion (Financial Restructuring & Bankruptcy Glossary) A common form of adequate protection for a secured debt . An equity cushion exists if the value of the collateral available to the creditor exceeds by a reasonable margin the amount of the creditor’s claim.
