Abstract:
In the midst of reorganizations debtors and creditors often find themselves in a fierce struggle for control of “cash collateral.” Without the use of cash collateral, the debtor may have to shut down his business; yet, the creditor holding the security interest may prefer to receive immediate payment. Despite the importance of cash collateral, the Bankruptcy Code does not prescribe standards for its use; the case law has failed to provide a consistent test. This note emphasizes the need for a test, and proposes a two-tiered standard for the debtor’s use of cash collateral that embraces a dichotomy between emergency and nonemergency use. The author also suggests appropriate sanctions for misuse by debtors.