Chapter 8 - § 8.5 ADEQUATE PROTECTION — BANKRUPTCY CODE § 361

• Jurisdiction: Colorado

§ 8.5 ADEQUATE PROTECTION — BANKRUPTCY CODE § 361

Bankruptcy Code §§ 362 (automatic stay), 363 (use, sale, or lease of estate property), and 364 (obtaining post-petition financing) often require, in order for the debtor (or other party) to obtain certain relief, that a secured creditor be provided "adequate protection" for its security and for the burden and damages associated with the imposition of the automatic stay: "Adequate protection is, essentially, protection for the creditor to assure its collateral is not depreciating or diminishing in value and is made on a case-by-case basis."¹³ At bottom, "[t]he purpose of providing adequate protection is to insure that a creditor receives the value for which it bargained pre-bankruptcy. . . . The secured creditor must, therefore, prove this decline in value — or the threat of a decline — in order to establish a prima facie case."¹⁴

Additionally, the debtor and any affected secured creditor may seek stipulated relief under these provisions, subject to court approval and adherence to the applicable Federal Rule of Bankruptcy Procedure and Local Bankruptcy Rule. Motions to approve agreements to provide adequate protection are governed by Fed. R. Bankr. P. 4001(d), and when use of cash collateral and post-financing is at issue, L.B.R. 4001-2. It is not atypical, particularly in large Chapter 11 cases where the debtor seeks approval of post-petition financing or the right to use cash collateral, to see a motion from the debtor seeking a combination of relief under some or all of §§ 361, 362, 363, and 364.

Adequate protection is a flexible concept and debtors and courts are creative in approving the provision of adequate protection. Moreover, in the first few months of a case, courts are often loathe to require adequate protection that might be burdensome to a debtor or prevent it from make a good faith attempt at reorganization or other debtor-directed resolution of its bankruptcy case (e.g., a sale of substantially all its assets):

The first effort of the court must be to insure the value of the collateral will be preserved. Yet, prior to confirmation of a plan of reorganization, the test of that protection is not by the same measurements applied to the treatment of a secured creditor in a proposed plan. In order to encourage the Debtors' efforts in the formative period prior to the proposal of a reorganization, the court must be flexible in applying the adequate protection standard. In doing so, however, care

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