## Facts

- JKJ Chevrolet, Inc., an automobile dealership, filed a voluntary Chapter 11 petition in 1991.
- Ford Motor Credit Corporation held a first-priority security interest in most of JKJ’s assets, including inventory, accounts, and proceeds.
- During the Chapter 11 case, JKJ and Ford Credit entered court-approved cash-collateral consent orders under 11 U.S.C. § 363 permitting JKJ to use cash collateral subject to conditions (adequate-protection payments, replacement liens, and reporting/monitoring).
- A final consent order expressly authorized the use of cash collateral to pay employee wages for work performed before the March 1992 sale of JKJ’s business.
- After the sale, Ford Credit took control of remaining funds and seized employees’ paychecks that had been prepared for pre-sale wages.
- JKJ moved for authority to use the seized cash collateral to pay approximately $209,000 in pre-sale wages and related employee expenses; Ford Credit objected, claiming its interest was not adequately protected due to alleged collateral value decline.
- The bankruptcy court initially allowed the wage payment; on appeal, the district court remanded for an explicit finding on whether Ford Credit’s secured interest had been and would be adequately protected.
- The reported decision resolved the remand by determining adequate protection and whether the wage payment could be made from cash collateral.

## Issues

1. Whether Ford Credit’s interest in cash collateral was adequately protected under 11 U.S.C. § 363(e) given the consent-order protections and the debtor’s compliance.
2. Whether the debtor could use Ford Credit’s cash collateral, including seized payroll funds, to pay approximately $209,000 in employee wages and related expenses incurred before the business sale.

## Decision

- The court found Ford Credit’s secured interest was adequately protected by the negotiated and court-approved protections in the consent order (adequate-protection payments, replacement liens, and monitoring/reporting controls).
- The court authorized JKJ to use the cash collateral, including funds seized by Ford Credit, to pay the employees’ pre-sale wages and associated expenses.
- The court rejected Ford Credit’s contention that the wage payment should be barred based on asserted collateral value erosion where the consent-order framework provided the required protection.

## Legal Principles

- A debtor may use a secured creditor’s cash collateral under 11 U.S.C. § 363 only with consent or court authorization conditioned on “adequate protection” of the creditor’s interest.
- Adequate protection under § 363(e) is a fact-driven determination focused on guarding against a decline in the value of the creditor’s collateral position during the authorized use.
- A court-approved cash-collateral consent order can define and supply adequate protection through a package of measures such as periodic payments, replacement liens, and operational controls, particularly where the debtor performs under those terms and the creditor monitors compliance.
- A secured creditor’s later claim of collateral decline does not automatically defeat court-authorized cash-collateral use when the negotiated protection regime was designed to address risk of value change and remains effective in operation.

## Conclusion

The bankruptcy court held that Ford Credit received adequate protection within the consent-order structure and therefore permitted JKJ to use the creditor’s cash collateral to pay approximately $209,000 in employee wages and related expenses incurred before the sale of the business.


In re JKJ Chevrolet, Inc., 190 B.R. 542 (Bankr. E.D. Va. 1995)