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Further, given the economy’s status, is considering filing a Chapter 11 creditor’s claim. Sometimes a secured
secured lenders may find themselves bankruptcy, he or she should adequate- lender is undersecured, meaning
needing to be more lenient unless they ly plan and conserve cash or obtain that the lender’s debt is greater than
intend to foreclose on innumerable financing before filing to ensure there the value of property on which it is
properties and resell them at a loss. is sufficient funds to operate during secured. In such a case, the secured
the pendency of the bankruptcy case. lender is not entitled to post-petition
The Debtor’s Use of Cash During interest and attorneys’ fees. Likewise,
Bankruptcy The Debtor’s Tools in Reorganization in certain instances, the debtor may be
Filing a Chapter 11 petition in Once a Chapter 11 case is filed, able to bifurcate (divide) the lender’s
this climate will not eliminate a SARE a debtor has many tools to bring the claim and treat a portion of the lender’s
debtor’s immediate problem–decreased creditors to the table to renegotiate claim as an unsecured claim.
revenue. In a Chapter 11 bankruptcy, a debt and reorganize its business. The A debtor may negotiate the interest
debtor must obtain permission to use ultimate goal of the bankruptcy case is rate on a new loan paying the secured
cash encumbered by secured lenders’ to file a plan that governs how credi- creditor using two possible approach-
liens. Often, a secured lender will tors will be paid. This plan is submitted es, the ”prime-plus” approach or the
agree, at least initially, to some use of to the debtor’s creditors who are “market-rate” approach. An interest
cash collateral, mainly if the use would allowed to vote in favor of, or against, reduction may enable a debtor’s pro-
preserve the value of its collateral. If, the plan. Similarly, situated creditors posed plan to become feasible. Finally,
however, a secured lender is unwilling are grouped as a “class,” and at least Chapter 11 can buy the debtor time
to allow a debtor to use cash collateral, one class of creditors must vote in favor to properly market the property for
bankruptcy courts are authorized to of the proposed plan. sale and obtain top dollar rather than
allow the use of cash over the lender’s If all classes of creditors do not vote conduct a fire sale.
objection in certain situations. in favor of a plan, the debtor can “cram-
If a debtor is unable to meet obliga- down” the plan to those dissenting A Brave New World
tions with current revenues, it may be classes and force them to adhere to the Today more than ever, a SARE
able to obtain post-petition financing plan so long as the plan is fair and eq- landlord must weigh the positives and
to meet the shortfall. However, because uitable. The court will find the debtor’s negatives of evicting tenants. It may
these loans increase a secured lender’s proposed plan to be fair to a particular be exponentially more challenging
exposure, they are often contentious. class if the members of the class receive to locate a new tenant than to work
In the context of a SARE case and be- cash, property or securities equal to with a current tenant. The same logic
cause of the ongoing COVID- 19 crisis, the full allowed amount of their claim, applies to a secured lender of a SARE
the debtor may have to show that the or no junior class receives, or retains, landlord. As the retail apocalypse
real estate value is more than sufficient any property from the debtor. surges and stay-at-home orders have
to pay off the post-petition lender and Debtors also have some ammunition prompted businesses to reevaluate
secured lender. Thus, if a SARE debtor to reduce the amount of their secured remote working, lenders must evaluate
whether foreclosure and a glut of real
estate will benefit their bottom line in
the long term. N

Angeline Vachris Kell is an attorney at
Once a Chapter 11 case is filed, a debtor HooverSlovacek LLP. She received her
JD from South Texas College of Law
has many tools to bring the creditors and a Bachelor of Arts with a major in
Spanish from the University of Texas.
to the table to renegotiate debt and Mrs. Kell is the 2019-2020 President
reorganize its business. The ultimate goal of the Hon. Arthur L. Moller/David B.
Foltz, Jr. American Inn of Court.
of the bankruptcy case is to file a plan that
Vianey Garza is an associate attorney
governs how creditors will be paid. at HooverSlovacek LLP. She received

This plan is submitted to the debtor’s her JD from South Texas College
of Law and a Bachelor of Arts and
creditors who are allowed to vote in favor a Bachelor of Science from the
University of Texas–Austin. Mrs. Garza
of, or against, the plan. is the Treasurer of the Hon. Arthur L.
Moller/David B. Foltz, Jr. American
Inn of Court.

8 NBIZ ■ August 2020