5.12 When Action Should Be Brought

• Jurisdiction: United States

5.12 MOTION FOR USE OF CASH COLLATERAL

Taxing entities frequently have liens that attach to the incoming cash, or accounts receivable, of a small business. When the bankruptcy is filed, the holders of such security interests or liens have the right to collect their collateral, i.e. dip their hands in and pocket the cash as it comes in. This, of course, would quickly shut down most businesses. In those situations the debtor must apply to the court by noticed motion for permission to use the cash collateral. Typically, permission is granted on the condition that the creditor or taxing entity is given a replacement lien that automatically attaches to new receivable income as it is generated by the business, or on some other asset having equivalent value, thus providing the holder of the claim with adequate protection. Adequate...