MBank Dallas, N.A. v. O'Connor (In re O'Connor)
United States Court of Appeals for the Tenth Circuit
808 F.2d 1393 (1987)
- Written by Abby Roughton, JD
Facts
William and Jane O’Connor (debtors) filed for Chapter 11 bankruptcy and requested the bankruptcy court’s permission to use cash in a court-controlled bank account to pay for drilling three gas wells. To protect creditors’ interests in the cash, the O’Connors offered replacement liens on the proceeds from the gas wells and other unencumbered monthly income received by William. MBank Dallas, N.A. (the bank) (creditor) asserted a security interest in $721,600 cash and objected to the O’Connors’ use of the cash. At a hearing on the O’Connors’ request, the O’Connors presented evidence that the gas wells were likely to successfully produce gas and that the present value of the O’Connors’ interest in the expected cash flow from the wells was over $2.8 million. The O’Connors also presented evidence that they had other unencumbered income of $10,000 per month. The bankruptcy court granted the O’Connors leave to use the cash based on the potential revenue to be generated by the well-drilling project and the value of the monthly income offered as replacement security. The court also concluded that the bank would be adequately protected by the replacement liens proposed by the O’Connors. The district court reversed, holding that the replacement liens were too speculative to provide adequate protection as required by 11 U.S.C. § 363(e). The O’Connors appealed.
Rule of Law
Issue
Holding and Reasoning (Moore, J.)
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