## Facts

- Alyucan Interstate Corporation (Alyucan), a construction and real-estate development firm, filed a Chapter 11 petition on January 14, 1981.
- Bankers Life Insurance Company of Nebraska (Bankers Life) held a trust deed (first lien) on Alyucan’s real property securing a debt with a principal amount of $1,220,000.
- On May 4, 1981, Bankers Life filed an action seeking relief from the automatic stay under 11 U.S.C. § 362(d), alleging its interest in the real property was not adequately protected.
- A preliminary hearing under § 362(e) was held on May 20, 1981.
- The court fixed the value of the real property at $1,425,000 as of the petition date and found no erosion in value as of the hearing.
- The debt was $1,297,226 as of the petition date and increased to $1,330,761 by the hearing as interest accrued at roughly $8,000 per month.
- The court calculated an equity cushion of $127,774 (about 9%) as of the petition date, decreasing to $94,239 (about 6.5%) by the hearing.
- The evidence indicated that, if no payments were made and interest continued to accrue, the cushion would likely dissipate within a year.
- The property was necessary to Alyucan’s reorganization efforts.

## Issues

1. Whether an “equity cushion” is required to provide “adequate protection” for purposes of relief from the automatic stay under 11 U.S.C. § 362(d)(1).
2. Whether, on these facts (including a declining cushion due to accruing interest), Bankers Life lacked adequate protection such that “cause” existed to lift or modify the stay under § 362(d)(1).

## Decision

- The court denied Bankers Life’s request for relief from the automatic stay under § 362(d)(1).
- The court held that an equity cushion is not a required element of adequate protection under the Bankruptcy Code.
- The court found that Bankers Life’s interest was adequately protected at the time of the hearing because the collateral value exceeded the debt and there had been no demonstrated decline in collateral value.

## Legal Principles

- Under 11 U.S.C. § 362(d)(1), the court may grant relief from the automatic stay “for cause,” including lack of adequate protection of a creditor’s interest in property.
- “Adequate protection” is not defined in the Code and is applied on a case-by-case basis rather than by a rigid formula.
- Adequate protection focuses on guarding a secured creditor against an unreasonable risk of economic loss in the value of its interest during the stay.
- An equity cushion can be one way to show adequate protection, but it is neither mandatory nor the only permissible method.
- Accruing interest and a shrinking cushion are relevant to the adequate-protection analysis, but they do not require stay relief where the creditor remains oversecured and the collateral’s value is not shown to be declining.

## Conclusion

The bankruptcy court refused to lift the automatic stay because § 362(d)(1) does not make an equity cushion a required showing for adequate protection, and the record showed Bankers Life remained oversecured with no proven drop in collateral value, even though interest was reducing the cushion over time.


Bankers Life Insurance Company of Nebraska v. Alyucan Interstate Corp. (In re Alyucan Interstate Corp.), 12 B.R. 803 (1981)