Summary of a Recent
Judicial Development in
Bankruptcy

Creditor's Interest Must Be Adequately Protected
for Debtors to Use Cash Collateral

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Fischer, No. BK08-40125-TJM, 2008 Bankr. LEXIS 581 (Bankr. D. Neb. Feb. 28, 2008), the United States Bankruptcy Court for the District of Nebraska held that a debtor was allowed to use cash collateral generated from the sale of farm assets to obtain crop insurance, because the creditor's interest was adequately protected.

Background

Chapter 12 Debtors moved to sell calves and milo to pay pre- and post-petition insurance premiums for their crops. Id. at *2. TierOne Bank had a blanket security interest in all of the Debtors' farm products and equipment, as well as a deed of trust securing their real estate. Id. The Bank objected to the sale of its collateral and the use of its cash collateral. Id.

Arguments

The Bank argued that the Debtors were not providing adequate protection for the interest of the Bank in the cash collateral. Id.

Analysis and Holdings

The Bankruptcy Code prohibits the use of the proceeds received from a sale of assets unless the secured creditor consents or the court finds that the secured creditor's interest is adequately protected. Id. at *3. The court here found that TierOne Bank's interest was adequately protected because the Debtors' estate was valued at $511,000 and the Bank was owed $311,000, so if the Debtors used cash collateral in the amount of $22,000, there would still be an equity cushion of $178,000. Id. Also, the court reasoned that crop insurance was an important asset to a farming operation, and so allowed the Debtors to use cash collateral to obtain it. Id. at *3-4.

The case was decided on February 28, 2008.