Harris-Courage & Grady, PLLC
Use, Sale, or Lease of Property
The Bankruptcy Code governs the use, sale or lease of property in bankruptcy. The trustee may use, sell or lease the property of the estate other than in the ordinary course of business only after notice and a hearing. If the business of the debtor is authorized to be operated under Chapter 7, Chapter 11, Chapter 12, or Chapter 13, the trustee or debtor-in-possession may, without notice or hearing, use, sell or lease property of the estate in the ordinary course of business.
Cash collateral may not be used, sold or leased by the trustee or debtor-in-possession without the consent of each entity that has an interest in the cash collateral or the court’s authorization after notice and a hearing. The Bankruptcy Rules set forth the procedural requirements for cash collateral motions. Cash collateral is cash, negotiable instruments, documents of title, securities, deposit accounts or other cash equivalents, whenever acquired, in which the estate and an entity other than the estate have an interest. Cash collateral also includes the proceeds, products, offspring, rents or profits of property subject to a security interest, whether existing before or after the commencement of a bankruptcy case.
On request of an entity that has an interest in property used, sold, or leased, or proposed to be used, sold, or leased, by the trustee, the court will either prohibit or condition the use, sale, or lease in order to provide adequate protection of the interest.
A trustee may sell property free and clear of any liens where certain conditions are met. Most often, however, adequate protection in such circumstances requires that the tax lien and all other liens attach to the sale proceeds with the same priority that they had in the property prior to the sale.