In a recent Chapter 13 bankruptcy plan, the bankruptcy trustee ruled that the creditor (movant) would be granted relief from the automatic stay because the debtors could not offer adequate protection.
On August 17, 2005, Michael E. Redden, Jr. executed a note, payable to Movant, in the original principal amount of $152,000 (the "Home Note"). The Home Note provided for monthly payments of $999.01 per month, with a balloon payment due on August 17, 2010. (Movant's Exhibit 1).1 The Home Note is secured by a deed of trust covering a home located at Lot 2, Block 1, of Cannon Acres, a subdivision in Harris County, Texas. (Movant's Exhibit 2).
On May 4, 2006, Michael E. Redden, Jr. executed a second note, payable to Movant, in the original principal amount of $32,000 (the "Lot Note"). The Lot Note provided for monthly payments of $392.66, with a balloon payment due on May 4, 2011. (Movant's Exhibit 3).2 The Lot Note is secured by a deed of trust covering an undeveloped lot located at Lot 1, Block 1, of Cannon Acres, contiguous to the home securing the August 17, 2005 note. (Movant's Exhibit 4).
What is adequate protection in bankruptcy? Basically adequate protection is when the debtor can protect the creditor's interest in the property which secures a debt, either because they have equity or because they are making some type of payment. In this particular case the bankruptcy debtors' property was inundated with various liens leaving no equity cushion and they were unable to have their repayment plan confirmed because the trustee did not think it was feasible. In the end, the bankruptcy trustee ruled that the creditor could receive relief from the automatic stay because they would not otherwise receive payment and there was no point in allowing the debtors to retain the property which secured the outstanding debt.