A debtor who files a petition for relief under the Bankruptcy Reform Act of 1978 (the Code) triggers the automatic stay provisions of the Code. The automatic stay precludes creditors from enforcing their rights in the collateral pending further order of the Bankruptcy Court. An issue which has spurred continued controversy is whether undersecured creditors who are stayed from repossessing their collateral are entitled to compensation for the delay in enforcing their rights in the collateral. It is agreed that the concept of adequate protection provides for the preservation of the value of the collateral due to its use, depreciation, or age. However, the Circuit Courts of Appeals are not in accord in determining whether an undersecured creditor should be compensated for more than the collateral's depreciation. This circuit court split has to some extent been resolved by the recent United States Supreme Court opinion affirming a Fifth Circuit decision finding that an undersecured creditor is not entitled to compensation for the delay caused by the automatic stay in foreclosing on the collateral.
Amy S. Ashworth,
Adequate Protection- The Equitable Yardstick of Chapter 11,
U. Rich. L. Rev.
Available at: http://scholarship.richmond.edu/lawreview/vol22/iss3/7