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Chapter 11 Cash Collateral Basics for Secured Lenders
When a borrower files chapter 11, secured creditors often need quick, organized answers about cash collateral, weekly cash use, and interim financing for the debtor in possession. The notes below summarize recurring themes in first-month practice. They are general information only and do not replace review of your loan documents, lien searches, and local court rules.
What counts as cash collateral
In simple terms, cash collateral is cash and cash equivalents in which a creditor holds a security interest under applicable nonbankruptcy law. Common examples include operating account balances, rents and receivables where the lender has a perfected interest, and proceeds that remain subject to the lender's lien. The debtor in possession may not use that property without court authority or consent that meets the requirements of the Bankruptcy Code.
Typical first motions and timing
Debtors frequently seek authority to use cash collateral on a short fuse while a monthly budget is still taking shape. Lenders should align early on what interim relief is acceptable, what covenants will govern draws, and what reporting will accompany use of collateral. When interim consent is not possible, the issues move to a noticed cash collateral hearing where the court will look at adequate protection and the proposed limits on use.
- Confirm lien perfection, scope, and priority for the accounts and receivables at issue.
- Compare the debtor's weekly cash forecast to actual balances and concentration risk.
- Identify replacement liens, reserves, or carve-outs that can serve as adequate protection.
- Track professional fee orders and carve lines that may affect liquidity tests.
Budget lines creditors watch
Cash collateral orders often tie directly to a line-item budget. Secured lenders regularly focus on payroll for core staff, critical vendors, insurance, taxes, and maintenance that protects the collateral estate. Discretionary marketing, insider-related payments, and nonessential projects draw heavier scrutiny until the lender is satisfied that collateral value is stable.
DIP financing and roll-ups
New money from an existing prepetition lender may arrive as debtor-in-possession financing that primes or rolls into prior liens. Those structures require clear disclosure of fees, milestones, and relief from stay or plan treatment. Even when the same institution provides DIP and prepetition debt, the bankruptcy court still expects arm's-length terms and a record that explains benefit to the estate.
Where to read more on this site
For the firm's overall focus on restructuring and litigation, start at the SulmeyerKupetz home page. The Our Firm section explains how the practice is organized, and the Business Reorganization practice area page describes related chapter 11 work.