Summary of a Recent
Judicial Development in
Bankruptcy

Dairy Farmers' Plan Confirmed Despite
Oversecured Creditor's Objection

Patrick Roberts
National AgLaw Center Graduate Assistant

In In re Richards, No. 03-02487, 2004 WL 764526 (Bankr. N.D. Iowa Apr. 2, 2004), the United States Bankruptcy Court for the Northern District of Iowa determined that debtors' reorganization plan should be confirmed despite an oversecured creditor's objection because it adequately provided for the payment of creditor's secured claims. Debtors Robert and Nancy Richards filed for Chapter 12 bankruptcy and submitted their reorganization plan for confirmation. See id. at *1-2, 9. The plan provided for an already agreed upon amount of interest to be paid to secured creditors. See id. at *2. Iowa State Bank objected to confirmation, arguing that the proposed plan failed to protect its equity cushion in collateral for the term of the plan. See id. at *2-3, 9. The court explained that the amount of adequate protection afforded an oversecured creditor's claim encompasses only the decline in the value of the collateral and that the ratio of the collateral to the debt is not a consideration. See id. at *9. The court further determined that a secured creditor's equity cushion in collateral is only required to be protected to the extent reasonably necessary to assure that upon default the secured creditor will realize collateral value in the amount of its unpaid claim. See id. at *10-11 (citations omitted). The court concluded that the protection of the Bank's equity cushion was not required because the debtors' proposed amount of interest adequately protected the Bank's collateral, the Bank was entitled to inspect and receive reports on the collateral, and the Bank was entitled to retain a lien on the collateral. See id. at *13-14.

The case was decided on April 2, 2004; this summary was posted Dec. 2, 2005.