Glossary

Cash Collateral

Under bankruptcy law, cash and cash equivalents (including rents subject to a lender's assignment of rents or security interest) in which a secured creditor has an interest, which a bankrupt debtor may not use without either the creditor's consent or court authorization.

When a CRE borrower files for bankruptcy, property rents generally constitute cash collateral if the lender holds a properly perfected assignment of rents or a security interest reaching rental income, meaning the debtor-in-possession cannot simply spend that rent on operating expenses, professional fees, or anything else without either the lender's stipulated consent (typically negotiated through a cash collateral agreement with specified budget and reporting terms) or an affirmative bankruptcy court order following a contested hearing. Cash collateral disputes are often the first major battleground in a CRE bankruptcy case, since a lender lacking adequate protection of its cash collateral position can move to prohibit its use entirely, effectively starving the debtor's ability to operate the property and function as a significant point of leverage in negotiating a broader plan of reorganization or a consensual sale.