A given for bankruptcy lawyers is that secured creditors typically control the bankruptcy process. Although bankruptcy courts are a haven for debtors seeking relief, at least temporarily, from secured and unsecured creditors alike, a debtor with substantially all of its assets encumbered by liens has little wiggle room.
A debtor is limited in its use of encumbered cash (i.e., cash collateral) in bankruptcy to manage its business and pay its professionals absent approval of its secured creditors. A debtor is also limited in obtaining additional credit, particularly new credit that seeks to prime existing secured claims, without a trial to determine a host of issues, including whether the lender is adequately protected (i.e., there is a cushion to ensure that the lender’s collateral will not diminish in value as a result of the extension of new credit). See, e.g., §§363 and 364 of title 11, Chapter 11 of the U.S. Code (Code).
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