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factual issue for evidence and findings in bankruptcy courts. Perhaps courts will ultimately reach that conclusion, as did the Bankruptcy Review Commission, based on the Bankruptcy Reform Act's repeal of § 1124(3).
In § 1129(b)(2)(A), the Code neatly outlines three possible methods of treating a secured claim, over the holder's objection: (1) retention of the lien and payment of present value of the value of the lien; (2) sale of the collateral free and clear of the lien, with the creditor having the right to credit bid and the lien to apply to the proceeds; and (3) provision of the "indubitable equivalent" of the claim.
In income producing single asset cases, Timbers256 has caused some debate on how post-petition proceeds should be accounted for in valuing an undersecured creditor's security interest. If adequate protection payments are made to an undersecured creditor from sources that are not part of its collateral, then they must be applied to reduce the principal amount of the secured claim, rather than the total claim, because payment could not be made on an unsecured debt and Timbers prevents the payments from being applied to interest. The most authoritative holdings to this effect are probably the Seventh Circuit's holding in Wabash257 and the Ninth Circuit BAP's holding in Weinstein.258 Taken to its logical extreme, this could render an undersecured creditor more than adequately secured during the pendency of a case, resulting in denial of stay relief on the ground of adequate protection even though the debt
256
United Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S. Ct. 626 (1988).
257
In re Wabash Valley Power Association, 72 F.3d 1305 (7th Cir. 1995), cert. denied, 519 U.S. 965 (1996). In at least one case where property income had been paid to the undersecured creditor as "adequate protection/lost opportunity cost" payments prior to Timbers, the bankruptcy court concluded after the decision in Timbers that those payments could be credited toward the first months' secured debt service under the plan. This is economically the same as applying those prior payments to reduce the portion of the debt that is secured by the real property. In re Sherwood Square Associates, 87 B.R. 388 (Bankr. D. Md. 1988). The opinion contains no indication that the secured creditor claimed the rents as part of its security. The rents were paid to the secured creditor prior to confirmation as adequate protection payments as required by Grundy Nat. Bank v. Tandem Min. Corp., 754 F.2d 1436 (4th Cir. 1985), which was effectively overruled by Timbers.
258 In re Weinstein, 227 B.R. 284 (9th Cir. BAP 1998)(postpetition payments to undersecured creditor must be applied to secured claim, distinguishing case where payments derive from rents in which
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