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What is Adequate Protection in Bankruptcy?

Adequate protection is a term used in numerous sections of the Bankruptcy Code to describe protections afforded the holders of secured claims. Adequate protection is meant to preserve a secured creditor’s position at the time of the filing of the Bankruptcy. If adequate protection is not provided to a secured creditor, the creditor may take measures to obtain relief from the automatic stay, and retrieve the property in question.

For example, an automobile loan is a secured debt, because the loan is secured by the creditor’s lien on the automobile. The creditor is called a secured creditor. An automobile is continually depreciating in value, so a debtor in Bankruptcy must make assurances that the creditor will be reimbursed for this decline in value. Adequate protection in this instance probably would require the debtor to make payments to the creditor that is equivalent to the value of the secured property.

If a debtor files a Chapter 13 Bankruptcy, and seeks to pay the true value of an automobile through the Chapter 13 plan, then this amount must be amortized or paid, over a forty eight month period. If the automobile has a value of $10,000, then the debtor will pay approximately $203.00 per month (which is $10,000 divided by 48 months) through the Chapter 13 Bankruptcy, to the secured creditor. The $203.00 that the creditor receives monthly is adequate protection.

Adequate protection in a Chapter 7 Bankruptcy usually involves making the full monthly automobile payment. The Bankruptcy Code does not specifically define adequate protection, however, Section 361 addresses its treatment in Bankruptcy.

For more information about adequate protection in bankruptcy and how Jay Weller Legal Group can help you with your debt issues, contact us today or call us at 1-800-407-DEBT(3328).[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_column_text][vfb id=3][/vc_column_text][/vc_column][/vc_row]