## Facts

- Timbers of Inwood Forest Associates, Ltd. owned a Houston apartment project securing a nonrecourse loan held by United Savings Association of Texas.
- The property’s value was less than the debt, making United Savings an undersecured creditor.
- After Timbers filed for Chapter 11, the automatic stay barred United Savings from foreclosing.
- United Savings sought relief from the stay under 11 U.S.C. § 362(d)(1), arguing it lacked adequate protection unless it received periodic payments for the delay in foreclosure (the “time/use value” of the collateral).
- The bankruptcy court required monthly payments as a condition of continuing the stay; the district court affirmed; the Fifth Circuit reversed.

## Issues

1. Whether, under 11 U.S.C. § 362(d)(1), an undersecured creditor is entitled to “adequate protection” payments compensating for the delay in foreclosure caused by the automatic stay.
2. Under 11 U.S.C. § 362(d)(2), what showing a debtor must make to prove that property is “necessary to an effective reorganization.”

## Decision

- The Supreme Court affirmed the Fifth Circuit in a unanimous opinion by Justice Scalia.
- An undersecured creditor is not entitled under § 362(d)(1) to payments for the stay-imposed delay in foreclosure.
- For § 362(d)(2), property is “necessary to an effective reorganization” only if there is a reasonable possibility of a successful reorganization within a reasonable time.

## Legal Principles

- “Adequate protection” under § 362(d)(1) protects the value of the creditor’s security interest (the lien value), not a claimed right to immediate foreclosure or a return on the collateral during the stay.
- A request for “lost opportunity cost” due to delayed foreclosure is effectively a claim for postpetition interest on the collateral’s value, which undersecured creditors do not receive under § 506(b).
- Interpreting § 362(d)(1) to require “use value” payments to undersecured creditors would conflict with related Bankruptcy Code provisions and risk nullifying § 362(d)(2)’s separate stay-relief standard.
- Under § 362(d)(2), the debtor must show more than speculative prospects; the reorganization must be realistically in prospect within a reasonable time.

## Conclusion

The Court held that § 362(d)(1) does not require compensating undersecured creditors for foreclosure delay during the automatic stay, and it defined “necessary to an effective reorganization” under § 362(d)(2) as requiring a reasonable chance of a successful reorganization within a reasonable time.


United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988)