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Justin Dale Raymer & Linda Kay Raymer, Ch. 12, BK20-41195-BSK (Feb. 10, 2021)

After a trial, the court denied the Chapter 12 debtors’ open-ended motion to use cash collateral because the debtors could not prove they had a sufficient equity cushion in land, equipment, and livestock available to the secured creditors. The overall equity cushion, which the court said was a more appropriate calculation because interest and attorney fees for senior secured creditors significantly affect the equity cushion for junior creditors, was less than six percent and was subject to erosion through depreciation, death loss, market volatility, and the debtors’ proposal to make interest-only payments to secured creditors.

There was also an unexplained discrepancy between the debtors’ motion and plan regarding how much cash the debtors had on hand and how much of it was cash collateral. The court refused to allow the debtors to use all of the cash collateral. It also was clear that the debtors would need more cash collateral than they were asking for because they had no other financing lined up for 2021, but they did not put on evidence to demonstrate they were reasonably likely to successfully reorganize.

The court said it would consider allowing a short-term use of cash collateral while the debtors work to get a plan confirmed if the debtors could file a proposed budget for cash collateral for the next two months; a statement of the projected value of replacement liens on livestock and crops; an accounting of all cash and cash collateral since the petition date; and all monthly bank records since the petition date.

The court also denied the bank’s motion for an order requiring the debtors to transfer cash collateral pursuant to § 363(e) because the court hadn’t authorized the use of any cash collateral. However, the court said it would consider conditioning the debtors’ future use of cash collateral on them making an adequate protection payment to the bank, including transfer of the cash collateral.

Wednesday, February 10, 2021
Judge Brian S. Kruse