Protecting the collateral
A secured creditor in bankruptcy is stopped from foreclosing by the automatic stay, but it is not without tools. The debtor generally cannot use cash collateral, such as receivables or rents, without the creditor's consent or a court order, and the creditor is entitled to adequate protection against a decline in the collateral's value during the case. If adequate protection is lacking, or the debtor has no equity in the property and does not need it for a reorganization, the creditor can ask the court to lift the stay. Cash collateral and financing orders negotiated at the start often set the terms for the rest of the case.
Challenges to the lien
The trustee or debtor will review whether your lien was properly perfected, and a lien that was not properly filed or recorded can be avoided, leaving you as an unsecured creditor. Liens granted or perfected during the preference period may also be challenged as preferences. Expect questions about the collateral's value, because it determines how much of your claim is treated as secured and how a plan may treat you. Gather the loan and security agreements, UCC filings, mortgages, control agreements for deposit accounts, and records of the collateral's condition and value.
Choosing a posture in the case
Secured creditors may support a sale and credit bid their debt, negotiate a consensual plan, provide financing to the debtor, or oppose the case and seek stay relief. In Chapter 11, a plan can be confirmed over a secured creditor's objection when it meets specific protections for that class, and disputes over interest rates and value are common in that setting. Watching operating reports and the use of cash helps a creditor spot problems early. In a first meeting we review your documents, the collateral's position, and the debtor's plans, and decide which motions or objections to pursue.
