Family farmers in a chapter 12 case filed a motion seeking permission to use the cash collateral of their primary secured lender, a Bank. The Bank objected, arguing that the Debtors’ offer of adequate protection in the form of replacement liens on future cash, crops, and livestock was too speculative. The Court rejected this argument, concluding that the Bank was only entitled to additional adequate protection if the metamorphosis of the Bank’s collateral from cattle to cash and from crops to cash, and then from cash back into cattle and crops, would result in erosion of its position. Because the Debtors established that the Bank’s position would be improved over time, the Court allowed the Debtors to use cash collateral on those items in their budget that would maintain the status quo or improve the Bank’s position. The Court emphasized that the Bank was not entitled to demand, through the guise of adequate protection, that its farm loan be turned into a more risk-free loan.
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