The Bankruptcy Code does not specify when adequate protection payments should begin, and the courts are split, using three different dates.
Bankruptcy Judge David T. Thuma of Albuquerque settled on the filing date of the adequate protection motion, saying it is “simple, practical, consistent with the Code, and fair to both sides.”
Judge Thuma’s June 15 opinion contains a handy survey of the rationales courts use in selecting from among the three available dates. He lays out the legislative history of Section 361, which says that the statute does not provide a commencement date but leaves the issue “to case-by-case interpretation and development.”
Regardless of when a creditor files a motion for adequate protection, some courts use the petition date on the theory that the creditor was prevented from realizing on its collateral automatically on the commencement of bankruptcy. Using that date, however, could require retroactive payments covering possibly weeks or months before the debtor had an inkling that adequate protection might be required.
Judge Thuma cited a string of cases from the 1980s holding that a secured creditor’s “right to adequate protection begins on the petition date, regardless of when the creditor takes action to obtain adequate protection or stay relief.”
Judge Thuma said that “a few cases” use the date when the “creditor could have, absent the automatic stay, exercised state law remedies.” That date, the judge said, can be difficult to determine.
The motion date, Judge Thuma said, represents the “majority view and the pronounced trend.” Surveying opinions from around the country, he said that “the bulk of cases decided since about 1990 favor beginning adequate protection payments at the time relief is requested by the creditor.”
The motion date, Judge Thuma said, should be the adequate protection commencement date “in most cases.” He said the motion date is consistent with language in Sections 362 and 363, “which place the burden on the secured creditor.” He cited the Collier treatise for the proposition that the motion date “will often be most consistent with the Code scheme.”