Cite as: Keith M. Lundin, Lundin On Chapter 13, § 57.2, at ¶ ____, LundinOnChapter13.com (last visited __________).
Adequate protection is a creditor’s right to be protected from loss of value of its collateral during the delay between the filing of a Chapter 13 case and confirmation.1 In jurisdictions that quickly schedule confirmation,2 creditors rarely need to assert their adequate protection rights, and there is little adequate protection litigation in Chapter 13 cases. In jurisdictions where confirmation of Chapter 13 cases is delayed—for example, until after expiration of the period for filing proofs of claim—creditors may have important adequate protection rights to assert.
Adequate protection of collateral other than cash is not automatic.3 A lien creditor must demand adequate protection, typically by motion for relief from the stay or by motion to prohibit the debtor’s use of estate property subject to liens. In Chapter 13 practice, a phone call to debtor’s counsel is usually the right first step. An agreed order providing adequate protection is the usual resolution. The creditor that makes no demand for adequate protection before confirmation will be precluded by confirmation from asserting the lack of adequate protection as a ground for any entitlement.4
Creditors with security interests in perishable, depreciating or high-risk collateral may be entitled to periodic payments prior to confirmation. In some jurisdictions, routine representation of secured claim holders includes negotiating preconfirmation orders for adequate protection payments directly to the creditor or to the Chapter 13 trustee to compensate for the loss of value between filing and confirmation. Insurance must be maintained on automobiles, homes and personal property. If insurance is not in effect or lapses prior to confirmation, creditors’ counsel must demand insurance by motion for adequate protection and/or for relief from the stay.5
In Chapter 13 cases of debtors engaged in business, the adequate protection rights of creditors may be even more acute. For example, if the debtor is operating a grocery store, suppliers may have collateral that will spoil or that must be restocked on a daily basis. Adequate protection in the form of substitute liens and periodic payments may be essential prior to confirmation. An unconfirmed Chapter 13 plan is generally not by itself sufficient to provide adequate protection.6
A preconfirmation motion for adequate protection or relief from the stay can be a useful creditor strategy for improving treatment under the plan. When creditor’s counsel is having trouble getting the debtor’s attention, a motion for adequate protection will force the debtor to address the creditor’s concerns. A creditor’s motion can force the debtor to commit to precise treatment under the plan and accelerate the confirmation process. A request for adequate protection or for relief from the stay may be combined with the hearing on confirmation, and if the plan is not confirmed, preconfirmation payments or relief from the stay will then be addressed.
1 See § 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1 Adequate Protection of Lienholders before Confirmation.
2 See § 216.1 [ Timing of Hearing on Confirmation ] § 115.1 Timing of Hearing on Confirmation before BAPCPA.
3 See §§ 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1 Adequate Protection of Lienholders before Confirmation and 297.1 [ Failed Adequate Protection ] § 136.12 Failed Adequate Protection before BAPCPA.
4 See § 297.1 [ Failed Adequate Protection ] § 136.12 Failed Adequate Protection before BAPCPA.
5 See §§ 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1 Adequate Protection of Lienholders before Confirmation, 81.1 [ Lack of Adequate Protection ] § 64.1 Lack of Adequate Protection and 297.1 [ Failed Adequate Protection ] § 136.12 Failed Adequate Protection before BAPCPA.
6 See § 48.1 [ Adequate Protection of Lienholders prior to Confirmation ] § 47.1 Adequate Protection of Lienholders before Confirmation. See, e.g., In re Hinckley, 40 B.R. 679 (Bankr. D. Utah 1984).