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What happens when cash collateral is used?

Because a lender uses collateral to secure its interest in the debtor’s loan, the lender has an interest in protecting the jointly owned asset and is therefore a creditor. For example, if the debtor were to sell a company car, the holder of the car loan could lose money because the collateral for the loan is no longer part of the debtor’s estate. As a result, secured creditors are entitled to receive “adequate protection” if a debtor spends their collateral.

Barry Rosenzweig
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Barry Rosenzweig, has 25 years experience as an attorney helping clients solve their legal problems.