Adequate Protection Payments and the Surrender of Cash Collateral in Chapter 11 Reorganization
Carlson, David G.
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Abstract
The Bankruptcy Code is deeply confused about the metaphysics of the undersecured creditor. In general, it wants to stop the clock on creditor claims. Creditor claims are allowed as of the day of the bankruptcy petition; they may not grow over time. Thus, postpetition interest is forbidden, because this would admit that time exists.
But, inconsistently, postpetition interest is allowed to oversecured creditors-though only to the extent of the equity cushion. Thus, time is not abolished for oversecured creditors. Yet every oversecured creditor is implicitly an undersecured creditor, and perhaps vice versa. That is to say, once an equity cushion disappears, the oversecured creditor becomes an undersecured or at least barely secured creditor.
Therefore, if oversecured creditors live in a dynamic universe where time exists, the time of that universe will inevitably abolish itself.