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still far exceeds the value of the collateral. One court arrived at precisely this conclusion with respect to equipment collateral.259
The issue is somewhat different when the secured creditor also has a perfected security interest in the property income. This has resulted in at least three approaches.
Some courts have concluded that post-petition rents paid to the secured creditor pursuant to a cash collateral order would have to be deducted from the portion of the undersecured claim that was secured by the value of the real property collateral, because the rents are not separate from the real property collateral and cannot increase the amount of the secured claim as determined by the value of the income producing property (a value usually based on a capitalization of the income stream).260 One court has called these the "subtraction cases,"261 because the amount of the rents paid over is subtracted from the secured claim as determined by the value of the real property.
creditor also has a security interest).
In re Maun, 95 B.R. 94 (Bankr. S.D. Ill. 1989). The debt was $125,000, the value of the tractors securing the debt was stipulated to be $55,000, and during the pendency of the case the debtor paid $40,000 on the debt. The parties also stipulated the tractors were not necessary to an effective reorganization. The court concluded that the post-petition payments had to be applied to the secured portion of the debt, pursuant to Timbers, and therefore the secured claim was reduced to $15,000, with the result that stay relief was denied because the debtor had equity in the collateral. The court does not address the paradox that the debt is still $85,000 and the collateral worth only $55,000.
260 E.g., In re Barkley 3A Investors, Ltd., 175 B.R. 755 (Bankr. D. Kan. 1994)(adopting the "gestalt view of a security interest" in which "the value of the accruing rents is an integral part of the value of the real estate itself," holding that undersecured creditor is adequately protected by the replacement lien in future rents, and that to require turnover of the rents and increase the creditor's security interest would be "inconsistent with the 'equities of the case' within the meaning of § 552(b)"); In re Mullen, 172 B.R. 473 (Bankr. D. Mass. 1994)(same); In re Kalian, 169 B.R. 503 (Bankr. D. R.I. 1994)(interest in postpetition rents may not increase value of undersecured claim, and any rents paid must be applied to the principal balance of undersecured portion of claim, not to interest); In re IPC Atlantic Limited Partnership, 142 B.R. 547 (Bankr. N.D. Ga. 1992); In re B&B West 164th Street Corp., 147 B.R. 832 (Bankr. E.D.N.Y. 1992)(adequate protection payments to undersecured creditor cannot be applied to reduce the deficiency, but must be applied to reduce secured portion of debt); In re Immenhausen Corp., 159 B.R. 45 (Bankr. M.D. Fla. 1993)(post-petition rents paid to secured creditor eliminated its deficiency claim during pendency of case, and must be applied to the debt rather than being deemed adequate protection payments); Confederation Life Ins. Co. v. Beau Rivage Limited, 126 B.R. 632
(N.D. Ga. 1991)(post petition rents may properly be applied or credited toward debt service payments to be paid pursuant to the confirmed plan); In re Reddington/Sunarrow Ltd. Partnership, 119 B.R. 809 (Bankr. D.N.M 1990). See also In re Wood, 190 B.R. 788 (Bankr. M.D. Pa. 1996)(secured claims should be value as of petition date under § 506, and subsequent appreciation due to rezoning benefits debtor); In re Duval Manor Associates, 191 B.R. 622 (Bankr. E.D. Pa. 1996)(adopting a "dual valuation" approach, under which accrued rents increase value of collateral but do not increase amount of secured claim for adequate protection purposes); In re Homestead Partners, 200 B.R. 274 (Bankr.
E.D. Pa. 1996)(postpetition rents neither included nor excluded from calculation of secured claim).
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