During a Chapter 12 bankruptcy proceeding, debtors petitioned the court to use cash collateral to pay for the post-petition expenses they had incurred. They also requested to use the cash for ongoing farm expenses and family bills until a bankruptcy plan was implemented. A court must consider whether allowing a debtor to use cash collateral creates inadequate protection for the creditors. 11 U.S.C. § 363(e). A substantial equity cushion between the value of the collateral and the total amount of the liens can demonstrate that adequate protection exists. The creditors in this case had a $196,830 equity cushion or 5.69% of the total debt.
In the petition, the debtor claimed to have over $382,000 of cash collateral. However, the debtor’s Chapter 12 plan claimed that the debtors had $457,000 in cash collateral. The debtors could not explain this discrepancy or why they could not use the missing $75,000. Additionally, the debtors did not apply for 2021 financing for the farming operation. They would continue to need to use the cash collateral which would further erode the equity cushion. Therefore, because the proposed use of the cash collateral created substantial risk for the creditors, the court denied the motion. However, the court was willing to consider a two-month use of cash collateral if the debtors could show certain prerequisites.