Adequate protection payments in San Diego Bankruptcy

One of the most important parts of the bankruptcy Code deals with stays of creditor action, the right to use, sell, or lease collateral in the bankruptcy debtors business and the obtaining of credit. Matters arising under sections 361, 362 (stays), 363 (use, sale, or lease of property), and 364 (obtaining of credit) are often issues of great importance to both creditors and debtors in the early days of a Chapter 11 bankruptcy case. The basic requirement is that affected entities be afforded adequate protection of their interest in property of the bankruptcy estate; failing which relief from the automatic stay will be granted or the use of or borrowing against collateral will be prohibited. The term adequate protection is not formally defined in the Code, but some guidelines are offered in § 361, which suggests that adequate protection might include cash payments, additional collateral, or replacement collateral, but would not include the giving of an administrative priority. Section 361 does not apply in Chapter 12 bankruptcy cases since § 1205 sets forth illustrations of adequate protection applicable in Chapter 12. As will be discussed in Chapter 12, § 1205 is substantive in some respects. Section 507(b) provides a super-priority claim to a secured creditor in the event adequate protection fails to protect the secured creditor against loss.