## Facts

- Deico Electronics, Inc. filed a Chapter 11 case and continued using equipment necessary to its business and reorganization.
- Paccom Leasing Corporation held a security interest in that equipment and asserted the collateral was depreciating during the case.
- Paccom filed two motions seeking relief from the automatic stay or, alternatively, adequate protection.
- After a hearing on Paccom’s second motion (filed July 22, 1991; heard August 22, 1991), the bankruptcy court ordered adequate protection payments of $5,000 per month.
- The written order (entered October 22, 1991) required the first payment on September 22, 1991, effectively commencing payments prospectively rather than from the petition date or earlier motion dates.
- Paccom appealed, arguing the start date should have been earlier (petition date, first motion date, or at least the second motion date).

## Issues

1. Whether the Bankruptcy Code requires adequate protection payments to an undersecured creditor to begin retroactively from the petition date or from the creditor’s first request for protection.
2. Whether the bankruptcy court abused its discretion by setting a prospective commencement date for adequate protection payments.

## Decision

- The Bankruptcy Appellate Panel affirmed the order requiring $5,000 monthly adequate protection payments beginning September 22, 1991.
- The Panel held the Bankruptcy Code does not mandate a uniform “start date” for adequate protection payments.
- The Panel held the bankruptcy court has discretion to set a reasonable commencement date consistent with the purpose of adequate protection and the case record.
- On these facts, selecting a prospective start date was not reversible error and Paccom was not entitled to retroactive payments as a matter of law.

## Legal Principles

- Adequate protection under 11 U.S.C. §§ 361, 362, and 363 is intended to protect a secured creditor against diminution in the value of collateral during the bankruptcy case.
- Undersecured creditors are entitled to adequate protection only to the extent necessary to compensate for actual depreciation of collateral value, not merely for delay caused by the automatic stay.
- The Bankruptcy Code does not prescribe a single commencement date for adequate protection; timing is determined case-by-case.
- A bankruptcy court may set adequate protection to begin prospectively when that reasonably addresses anticipated collateral decline and the equities of reorganization.

## Conclusion

The Bankruptcy Appellate Panel upheld a prospective adequate protection order, holding that adequate protection is a compensatory remedy for collateral depreciation and that bankruptcy courts have discretion to set the start date without an automatic requirement of retroactive payments to the petition date or the creditor’s first request.


Paccom Leasing Corp. v. Deico Elecs., Inc. (In re Deico Elecs., Inc.), 139 B.R. 945 (B.A.P. 9th Cir. 1992)