What is “adequate protection” in a Chapter 11 bankruptcy?

Adequate protection in a chapter 11 bankruptcy is a legal term used to describe the protection of a creditor’s interest in any property that is part of the bankruptcy estate. In Oregon, the Bankruptcy Code grants a debtor, or the company filing for bankruptcy, the right to use and/or sell property that is part of the bankruptcy estate. If a debtor does this, however, they must provide “adequate protection” to the creditors’ interest in the property. This means that the debtor must find a way to make up for the value of the property that is being used or sold. Typically, adequate protection is provided through periodic payments or cash collateral. Any payments made to the creditors must be enough to satisfy the creditor’s interest in the property. A court may also order a variety of other forms of relief for the creditors, such as a lien on property, a super-priority lien, or a security interest. Depending on the specific situation and the creditor’s interest, however, a court may order different forms of adequate protection other than just payments or cash collateral. It is important for debtors to understand their responsibility to provide adequate protection to their creditors during a chapter 11 bankruptcy. The court will ultimately decide the best form of adequate protection, but failure to provide some form of adequate protection could result in serious consequences, such as the dismissal of the case or conversion to a chapter 7 bankruptcy.

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What is “adequate protection” in a Chapter 11 bankruptcy?

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