Sacramento Bankruptcy Attorney discusses Cash Collateral
Sacramento Bankruptcy Attorney discusses Cash Collateral
While filing for Chapter 11 bankruptcy may protect your business from creditors through the Automatic Stay, debtors need to be aware that filing the petition for Chapter 11 automatically creates a bankruptcy estate. This estate includes all of the property owned by the business at the time of filing which includes cash. What debtors may not be aware of is that the cash generated by the business post-filing is also likely to be considered property of the estate. The problem with this scenario arises when the business goes to pay its monthly bills, utilities, vendors, etc. Bankruptcy Code section 363(c)(2) specifically prohibits debtors from spending cash collateral without the consent of all interested parties to the bankruptcy. That means debtors must have permission from either all of its creditors, or a court order, before it can pay any bills using cash collateral.
Unauthorized use of cash collateral can have severe consequences for debtors, including hefty monetary sanctions, as well as possible dismissal of the bankruptcy proceeding. As such, it is recommended that an Emergency Motion for use of cash collateral be filed in conjunction with the debtor’s Chapter 11 petition. The Court can then make orders “carving out” cash collateral for the business’s use to enable it to remain operational during the bankruptcy proceeding.
If you have a question regarding Bankruptcy please contact Sagaria Law at 1-800-941-6730 for a free consultation or visit us at www.sagarialaw.com. Our team of Bankruptcy Lawyers can assist you with all aspects of your case. If you are have questions about filing a chapter 7 bankruptcy, a chapter 13 bankruptcy, lien stripping, discharging debt, etc. we can help! We have bankruptcy attorneys in San Mateo, Fremont, Sacramento, Roseville, San Francisco, Salinas and San Jose.
