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What is adequate protection?

Adequate protection is a back-up source of security for secured creditors whose collateral is being spent by the debtor. This issue is particularly relevant when the collateral has lost value over time. If debtors were allowed to dispose of collateral without compensating their creditors, that action would functionally erase the secured nature of the debt. Adequate protection may take the form of an upfront payment, periodic payments or a substitute item of collateral.