When a bankruptcy petition is filed, § 362(a) of the Bankruptcy
Code provides an automatic stay of actions taken to realize the
value of collateral given by the debtor. Section 362(d) authorizes
the bankruptcy court to grant relief from the stay "(1) for cause,
including the lack of adequate protection of an interest in
property of . . . [a] party in interest," or "(2) with respect to a
stay of an act against property," if the debtor does not have an
equity in such property (
i.e., the creditor is
undersecured) and the property is "not necessary to an effective
reorganization." Section 361 provides that adequate protection of
an entity's interest in property may be provided by granting such
relief "as will result in the realization by such entity of the
indubitable equivalent of its interest." After respondent filed a
petition for reorganization under Chapter 11 of the Code,
petitioner, an undersecured creditor, moved the Bankruptcy Court
for relief from the § 362(a) stay on the ground that there was a
lack of "adequate protection" of its interest within the meaning of
§ 362(d)(1). The court granted relief, conditioning continuance of
the stay on monthly payments by respondent on the estimated amount
realizable on the foreclosure that the stay prevented. The District
Court affirmed, but the Court of Appeals reversed.
Held: Undersecured creditors are not entitled to
compensation under § 362(d)(1) for the delay caused by the
automatic stay in foreclosing on their collateral. Pp.
484 U. S.
370-380.
(a) The language of other Code provisions that deal with the
rights of secured creditors, and the substantive dispositions that
those provisions effect, establish that the "interest in property"
protected by § 362(d)(1) does not include a secured party's right
to immediate foreclosure. First, petitioner's contrary
interpretation contradicts the carefully drawn substantive
disposition effected by § 506(b), which codifies the pre-Code rule
denying undersecured creditors post-petition interest on their
claims. Had Congress nevertheless meant to give undersecured
creditors interest on the value of their collateral, it would have
said so plainly in § 506(b). Moreover, the meaning of § 362(d)(1)'s
"interest in property" phrase is clarified by the use of similar
terminology in § 506(a), where it must be interpreted to mean only
the creditor's security interest
Page 484 U. S. 366
in the property without regard to his right to immediate
possession on default. Second, § 552(b), which makes possession of
a perfected security interest in post-petition rents or profits
from collateral a condition of having them applied to satisfy the
secured creditor's claim ahead of the claims of unsecured
creditors, is inconsistent with petitioner's interpretation of §
362(d)(1), under which the undersecured creditor who lacks such a
perfected security interest in effect could achieve the same result
by demanding the "use value" of his collateral. Third, petitioner's
interpretation of § 362(d)(1) makes a practical nullity of §
362(d)(2), which, on petitioner's theory, would be of use only to a
secured creditor who was fully protected both as to the value of,
and interest on, its collateral, but nonetheless wanted to
foreclose. Petitioner's contention that undersecured creditors will
face inordinate and extortionate delay if they are denied
compensation under § 362(d)(1) is also belied by § 362(d)(2), which
requires relief from the stay unless the debtor establishes a
reasonable possibility of a successful reorganization within a
reasonable time, and under which numerous cases have provided
relief within less than a year from the filing of the bankruptcy
petition. Pp.
484 U. S.
370-376.
(b) Denying petitioner compensation under § 362(d)(1) is not
inconsistent with § 361(3)'s use of the phrase "indubitable
equivalent." Although the same phrase appears in § 1129(b), under
which section, as a condition for confirmation of a reorganization
plan, a secured claimant has a right to receive the present value
of his collateral (including interest if the claim is to be paid
over time), the source of the right in § 1129 is not the
"indubitable equivalent" language, but the provision guaranteeing
payments of a value, "
as of the effective date of the
plan," equal to the value of the collateral. Similarly,
petitioner's contention that, since general administrative expenses
do not have priority over secured claims,
see §§ 506(c),
507(a), the Code embodies a principle prohibiting secured creditors
from bearing any of the costs of reorganization, is without merit.
Congress could not have intended that its readoption of the
pre-Code administrative expenses rule would work a change in the
also readopted pre-Code rule denying undersecured creditors
post-petition interest. Finally, although failure to interpret §
362(d)(1) to require compensation for undersecured creditors
appears inconsistent with § 726(a)(5), which allows post-petition
interest on unsecured claims when the debtor proves solvent, this
anomaly pertains to such a rare occurrence that it is likely the
product of congressional inadvertence, and, in any case, its
inequitable effects are entirely avoidable. Pp.
484 U. S.
377-379.
(c) General statements in the legislative history of §§ 361 and
362(d)(1) that "[s]ecured creditors should not be deprived of the
benefit of their bargain" are inadequate to overcome the plain
textual indication in
Page 484 U. S. 367
§§ 506 and 362(d)(2) of Congress' intent, as discussed above. It
is most improbable that Congress would have made a major change
entitling undersecured creditors to post-petition interest without
specifically mentioning it in the legislative history. Petitioner's
argument that pre-Code Chapter XI gave undersecured creditors the
absolute right to foreclose, and that the silence of the Code's
legislative history as to the withdrawal of that right indicates a
congressional intent to provide interest on the collateral during
the stay as a substitute, is flawed. The authorities are far from
clear that there was a distinctive Chapter XI rule of absolute
entitlement to foreclose, but, even assuming there was, § 362(d)(2)
indicates that, in enacting Chapter 11 of the current Code,
Congress adopted the approach of pre-Code Chapters X and XII, under
which the undersecured creditor did not have such an absolute
right. Pp.
484 U. S.
379-382.
808 F.2d 363, affirmed.
SCALIA, J., delivered the opinion for a unanimous Court.
JUSTICE SCALIA delivered the opinion of the Court.
Petitioner United Savings Association of Texas seeks review of
an en banc decision of the United States Court of Appeals for the
Fifth Circuit holding that petitioner was not entitled to receive
from respondent debtor, which is undergoing
Page 484 U. S. 368
484 U. S. 368
reorganization in bankruptcy, monthly payments for the use value of
the loan collateral which the bankruptcy stay prevented it from
possessing.
In re Timbers of Inwood Forest Associates,
Ltd., 808 F.2d 363 (1987). We granted certiorari, 481 U.S.
1068 (1987), to resolve a conflict in the Courts of Appeals
regarding application of §§ 361 and 362(d)(1) of the Bankruptcy
Code, 11 U.S.C. §§ 361 and 362(d)(1) (1982 ed. and Supp. IV).
Compare Grundy Nat. Bank v. Tandem Mining Corp., 754 F.2d
1436, 1440-1441 (CA4 1985);
In re American Mariner Industries,
Inc., 734 F.2d 426, 432-435 (CA9 1984);
see also In re
Briggs Transp. Co., 780 F.2d 1339, 1348-1351 (CA8 1985).
I
On June 29, 1982, respondent Timbers of Inwood Forest
Associates, Ltd., executed a note in the principal amount of
$4,100,000. Petitioner is the holder of the note as well as of a
security interest created the same day in an apartment project
owned by respondent in Houston, Texas. The security interest
included an assignment of rents from the project. On March 4, 1985,
respondent filed a voluntary petition under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. § 101
et seq. (1982 ed. and
Supp. IV), in the United States Bankruptcy Court for the Southern
District of Texas.
On March 18, 1985, petitioner moved for relief from the
automatic stay of enforcement of liens triggered by the petition,
see 11 U.S.C. § 362(a), on the ground that there was lack
of "adequate protection" of its interest within the meaning of 11
U.S.C. § 362(d)(1). At a hearing before the Bankruptcy Court, it
was established that respondent owed petitioner $4,366,388.77, and
evidence was presented that the value of the collateral was
somewhere between $2,650,000 and $4,250,000. The collateral was
appreciating in value, but only very slightly. It was therefore
undisputed that petitioner was an undersecured creditor. Respondent
had agreed to pay petitioner the post-petition rents from the
Page 484 U. S. 369
apartment project (covered by the after-acquired property clause
in the security agreement), minus operating expenses. Petitioner
contended, however, that it was entitled to additional
compensation. The Bankruptcy Court agreed, and on April 19, 1985,
it conditioned continuance of the stay on monthly payments by
respondent, at the market rate of 12% per annum, on the estimated
amount realizable on foreclosure, $4,250,000 -- commencing six
months after the filing of the bankruptcy petition, to reflect the
normal foreclosure delays.
In re Bear Creek Ministorage,
Inc., 49 B.R. 454 (1985) (editorial revision of earlier
decision). The court held that the post-petition rents could be
applied to these payments.
See id. at 460. Respondent
appealed to the District Court, and petitioner cross-appealed on
the amount of the adequate protection payments. The District Court
affirmed but the Fifth Circuit en banc reversed.
We granted certiorari to determine whether undersecured
creditors are entitled to compensation under 11 U.S.C. § 362(d)(1)
for the delay caused by the automatic stay in foreclosing on their
collateral.
II
When a bankruptcy petition is filed, § 362(a) of the Bankruptcy
Code provides an automatic stay of, among other things, actions
taken to realize the value of collateral given by the debtor. The
provision of the Code central to the decision of this case is §
362(d), which reads as follows:
"On request of a party in interest and after notice and a
hearing, the court shall grant relief from the stay provided under
subsection (a) of this section, such as by terminating, annulling,
modifying, or conditioning such stay -- "
"(1) for cause, including the lack of adequate protection of an
interest in property of such party in interest; or"
"(2) with respect to a stay of an act against property under
subsection (a) of this section, if -- "
Page 484 U. S. 370
"(A) the debtor does not have an equity in such property;
and"
"(B) such property is not necessary to an effective
reorganization."
The phrase "adequate protection" in paragraph (1) of the
foregoing provision is given further content by § 361 of the Code,
which reads in relevant part as follows:
"When adequate protection is required under section 362 . . . of
this title of an interest of an entity in property, such adequate
protection may be provided by -- "
"(1) requiring the trustee to make a cash payment or periodic
cash payments to such entity, to the extent that the stay under
section 362 of this title . . . results in a decrease in the value
of such entity's interest in such property;"
"(2) providing to such entity an additional or replacement lien
to the extent that such stay . . . results in a decrease in the
value of such entity's interest in such property; or"
"(3) granting such other relief . . . as will result in the
realization by such entity of the indubitable equivalent of such
entity's interest in such property."
It is common ground that the "interest in property" referred to
by § 362(d)(1) includes the right of a secured creditor to have the
security applied in payment of the debt upon completion of the
reorganization, and that that interest is not adequately protected
if the security is depreciating during the term of the stay. Thus,
it is agreed that, if the apartment project in this case had been
declining in value, petitioner would have been entitled, under §
362(d)(1), to cash payments or additional security in the amount of
the decline, as § 361 describes. The crux of the present dispute is
that petitioner asserts, and respondent denies, that the phrase
"interest in property" also includes the secured party's right
(suspended by the stay) to take immediate possession of the
defaulted
Page 484 U. S. 371
security, and apply it in payment of the debt. If that right is
embraced by the term, it is obviously not adequately protected
unless the secured party is reimbursed for the use of the proceeds
he is deprived of during the term of the stay.
The term "interest in property" certainly summons up such
concepts as "fee ownership," "life estate," "co-ownership," and
"security interest" more readily than it does the notion of "right
to immediate foreclosure." Nonetheless, viewed in the isolated
context of § 362(d)(1), the phrase could reasonably be given the
meaning petitioner asserts. Statutory construction, however, is a
holistic endeavor. A provision that may seem ambiguous in isolation
is often clarified by the remainder of the statutory scheme --
because the same terminology is used elsewhere in a context that
makes its meaning clear,
see, e.g., Sorenson v. Secretary of
Treasury, 475 U. S. 851,
475 U. S. 860
(1986), or because only one of the permissible meanings produces a
substantive effect that is compatible with the rest of the law,
see, e.g., Pilot Life Ins. Co. v. Dedeaux, 481 U. S.
41,
481 U. S. 54
(1987);
Weinberger v. Hynson, Westcott & Dunning,
Inc., 412 U. S. 609,
412 U. S.
631-632 (1973);
Jarecki v. G. D. Searle &
Co., 367 U. S. 303,
367 U. S.
307-308 (1961). That is the case here. Section 362(d)(1)
is only one of a series of provisions in the Bankruptcy Code
dealing with the rights of secured creditors. The language in those
other provisions, and the substantive dispositions that they
effect, persuade us that the "interest in property" protected by §
362(d)(1) does not include a secured party's right to immediate
foreclosure.
Section 506 of the Code defines the amount of the secured
creditor's allowed secured claim and the conditions of his
receiving post-petition interest. In relevant part it reads as
follows:
"(a) An allowed claim of a creditor secured by a lien on
property in which the estate has an interest . . . is a secured
claim to the extent of the value of such creditor's interest in the
estate's interest in such property, . . . and
Page 484 U. S. 372
is an unsecured claim to the extent that the value of such
creditor's interest . . . is less than the amount of such allowed
claim. . . ."
"(b) To the extent that an allowed secured claim is secured by
property the value of which . . . is greater than the amount of
such claim, there shall be allowed to the holder of such claim,
interest on such claim, and any reasonable fees, costs, or charges
provided for under the agreement under which such claim arose."
In subsection (a) of this provision, the creditor's "interest in
property" obviously means his security interest without taking
account of his right to immediate possession of the collateral on
default. If the latter were included, the "value of such creditor's
interest" would increase, and the proportions of the claim that are
secured and unsecured would alter, as the stay continues -- since
the value of the entitlement to use the collateral from the date of
bankruptcy would rise with the passage of time. No one suggests
this was intended. The phrase "value of such creditor's interest"
in § 506(a) means "the value of the collateral." H.R.Rep. No.
95-595, pp. 181, 356 (1977);
see also S.Rep. No. 95-989,
p. 68 (1978). We think the phrase "value of such entity's interest"
in § 361(1) and (2), when applied to secured creditors, means the
same.
Even more important for our purposes than § 506's use of
terminology is its substantive effect of denying undersecured
creditors post-petition interest on their claims -- just as it
denies oversecured creditors post-petition interest to the extent
that such interest, when added to the principal amount of the
claim, will exceed the value of the collateral. Section 506(b)
provides that
"
[t]o the extent that an allowed secured claim is
secured by property the value of which . . . is greater than the
amount of such claim, there shall be allowed to the holder of such
claim, interest on such claim."
(Emphasis added.) Since this provision permits post-petition
interest to be paid only out of the "security cushion," the
undersecured creditor,
Page 484 U. S. 373
who has no such cushion, falls within the general rule
disallowing post-petition interest.
See 11 U.S.C. §
502(b)(2). If the Code had meant to give the undersecured creditor,
who is thus denied interest on his claim, interest on the value of
his collateral, surely this is where that disposition would have
been set forth, and not obscured within the "adequate protection"
provision of § 362(d)(1). Instead of the intricate phraseology set
forth above, § 506(b) would simply have said that the secured
creditor is entitled to interest "on his allowed claim, or on the
value of the property securing his allowed claim, whichever is
lesser." Petitioner's interpretation of § 362(d)(1) must be
regarded as contradicting the carefully drawn disposition of §
506(b).
Petitioner seeks to avoid this conclusion by characterizing §
506(b) as merely an alternative method for compensating oversecured
creditors, which does not imply that no compensation is available
to undersecured creditors. This theory of duplicate protection for
oversecured creditors is implausible even in the abstract, but even
more so in light of the historical principles of bankruptcy law.
Section 506(b)'s denial of post-petition interest to undersecured
creditors merely codified pre-Code bankruptcy law, in which that
denial was part of the conscious allocation of reorganization
benefits and losses between undersecured and unsecured
creditors.
"To allow a secured creditor interest where his security was
worth less than the value of his debt was thought to be inequitable
to unsecured creditors."
Vanston Bondholders Protective Committee v. Green,
329 U. S. 156,
329 U. S. 164
(1946). It was considered unfair to allow an undersecured creditor
to recover interest from the estate's unencumbered assets before
unsecured creditors had recovered any principal.
See id.
at
329 U. S. 164,
329 U. S. 166;
Ticonic Nat. Bank v. Sprague, 303 U.
S. 406,
303 U. S. 412
(1938). We think it unlikely that § 506(b) codified the pre-Code
rule with the intent, not of achieving the principal purpose and
function of that rule, but of providing oversecured creditors an
alternative method of compensation.
Page 484 U. S. 374
Moreover, it is incomprehensible why Congress would want to
favor undersecured creditors with interest if they move for it
under § 362(d)(1) at the inception of the reorganization process --
thereby probably pushing the estate into liquidation -- but not if
they forbear and seek it only at the completion of the
reorganization.
Second, petitioner's interpretation of § 362(d)(1) is
structurally inconsistent with 11 U.S.C. § 552. Section 552(a)
states the general rule that a prepetition security interest does
not reach property acquired by the estate or debtor post-petition.
Section 552(b) sets forth an exception, allowing post-petition
"proceeds, product, offspring, rents, or profits" of the collateral
to be covered only if the security agreement expressly provides for
an interest in such property, and the interest has been perfected
under "applicable nonbankruptcy law."
See, e.g., In re
Casbeer, 793 F.2d 1436, 1442-1444 (CA5 1986);
In re
Johnson, 62 B.R. 24, 28-30 (CA9 Bkrtcy.App. Panel 1986);
cf. Butner v. United States, 440 U. S.
48,
440 U. S. 54-56
(1979) (same rule under former Bankruptcy Act). Section 552(b)
therefore makes possession of a perfected security interest in
post-petition rents or profits from collateral a condition of
having them applied to satisfying the claim of the secured creditor
ahead of the claims of unsecured creditors. Under petitioner's
interpretation, however, the undersecured creditor who lacks such a
perfected security interest in effect achieves the same result by
demanding the "use value" of his collateral under § 362. It is true
that § 506(b) gives the oversecured creditor, despite lack of
compliance with the conditions of § 552, a similar priority over
unsecured creditors, but that does not compromise the principle of
§ 552, since the interest payments come only out of the "cushion"
in which the oversecured creditor does have a perfected security
interest.
Third, petitioner's interpretation of § 362(d)(1) makes nonsense
of § 362(d)(2). On petitioner's theory, the undersecured creditor's
inability to take immediate possession of
Page 484 U. S. 375
his collateral is always "cause" for conditioning the stay (upon
the payment of market rate interest) under § 362(d)(1), since there
is, within the meaning of that paragraph, "lack of adequate
protection of an interest in property." But § 362(d)(2) expressly
provides a different standard for relief from a stay "of an act
against property," which of course includes taking possession of
collateral. It provides that the court shall grant relief "if . . .
(A) the debtor does not have an equity in such property
[
i.e., the creditor is undersecured];
and (B)
such property is not necessary to an effective reorganization."
(Emphasis added.) By applying the "adequate protection of an
interest in property" provision of § 362(d)(1) to the alleged
"interest" in the earning power of collateral, petitioner creates
the strange consequence that § 362 entitles the secured creditor to
relief from the stay (1) if he is undersecured (and thus not
eligible for interest under § 506(b)),
or (2) if he is
undersecured
and his collateral "is not necessary to an
effective reorganization." This renders § 362(d)(2) a practical
nullity and a theoretical absurdity. If § 362(d)(1) is interpreted
in this fashion, an undersecured creditor would seek relief under §
362(d)(2) only if his collateral was not depreciating (or it was
being compensated for depreciation) and he was receiving market
rate interest on his collateral, but nonetheless wanted to
foreclose. Petitioner offers no reason why Congress would want to
provide relief for such an obstreperous and thoroughly unharmed
creditor.
Section 362(d)(2) also belies petitioner's contention that
undersecured creditors will face inordinate and extortionate delay
if they are denied compensation for interest lost during the stay
as part of "adequate protection" under § 362(d)(1). Once the movant
under § 362(d)(2) establishes that he is an undersecured creditor,
it is the burden of the
debtor to establish that the
collateral at issue is "necessary to an effective reorganization."
See § 362(g). What this requires is not merely a showing
that, if there is conceivably to be an effective reorganization,
this property will be needed for it; but
Page 484 U. S. 376
that the property is essential for an effective reorganization
that is in prospect. This means, as many lower courts,
including the en banc court in this case, have properly said, that
there must be "a reasonable possibility of a successful
reorganization within a reasonable time." 808 F.2d at 370-371, and
nn. 12-13, and cases cited therein. The cases are numerous in which
§ 362(d)(2) relief has been provided within less than a year from
the filing of the bankruptcy petition. [
Footnote 1] And while the bankruptcy courts demand less
detailed showings during the four months in which the debtor is
given the exclusive right to put together a plan,
see 11
U.S.C. §§ 1121(b), (c)(2), even within that period, lack of any
realistic prospect of effective reorganization will require §
362(d)(2) relief. [
Footnote
2]
Page 484 U. S. 377
III
A
Petitioner contends that denying it compensation under §
362(d)(1) is inconsistent with sections of the Code other than
those just discussed. Petitioner principally relies on the phrase
"indubitable equivalent" in § 361(3), which also appears in 11
U.S.C. § 1129(b)(2)(A)(iii). Petitioner contends that, in the
latter context, which sets forth the standards for confirming a
reorganization plan, the phrase has developed a well-settled
meaning connoting the right of a secured creditor to receive
present value of his security -- thus requiring interest if the
claim is to be paid over time. It is true that, under § 1129(b), a
secured claimant has a right to receive under a plan the present
value of his collateral. This entitlement arises, however, not from
the phrase "indubitable equivalent" in § 1129(b)(2)(A)(iii), but
from the provision of § 1129(b)(2)(A)(i)(II) that guarantees the
secured creditor
"deferred cash payments . . . of a value,
as of the
effective date of the plan, of at least the value of such
[secured claimant's] interest in the estate's interest in such
property."
(Emphasis added.) Under this formulation, even though the
undersecured creditor's "interest" is regarded (properly) as solely
the value of the collateral, he must be rendered payments that
assure him that value
as of the effective date of the
plan. In § 361(3), by contrast, the relief pending the stay
need only be such "
as will result in the realization . . .
of the indubitable equivalent" of the collateral. (Emphasis added.)
It is obvious (since §§ 361 and 362(d)(1) do not entitle the
secured creditor to immediate payment of the principal of his
collateral) that this "realization" is to "result" not at once, but
only upon completion of the reorganization. It is then that he must
be assured "realization . . . of the indubitable equivalent" of his
collateral. To put the point differently: similarity of outcome
between § 361(3) and § 1129 would be demanded only if the former
read "such other relief . . . as
Page 484 U. S. 378
will give such entity,
as of the date of the relief,
the indubitable equivalent of such entity's interest in such
property."
Nor is there merit in petitioner's suggestion that "indubitable
equivalent" in § 361(3) connotes reimbursement for the use value of
collateral because the phrase is derived from
In re Murel
Holding Corp., 75 F.2d 941 (CA2 1935), where it bore that
meaning.
Murel involved a proposed reorganization plan
that gave the secured creditor interest on his collateral for 10
years, with full payment of the secured principal due at the end of
that term; the plan made no provision, however, for amortization of
principal or maintenance of the collateral's value during the term.
In rejecting the plan,
Murel used the words "indubitable
equivalence" with specific reference not to interest (which was
assured), but to the jeopardized principal of the loan:
"Interest is indeed the common measure of the difference
[between payment now and payment 10 years hence], but a creditor
who fears the safety of his principal will scarcely be content with
that; he wishes to get his money, or at least the property. We see
no reason to suppose that the statute was intended to deprive him
of that in the interest of junior holders, unless by a substitute
of the most indubitable equivalence."
Id. at 942. Of course,
Murel, like § 1129,
proceeds from the premise that, in the confirmation context, the
secured creditor is entitled to present value. But no more from
Murel than from § 1129 can it be inferred that a similar
requirement exists as of the time of the bankruptcy stay. The
reorganized debtor is supposed to stand on his own two feet. The
debtor in process of reorganization, by contrast, is given many
temporary protections against the normal operation of the law.
Petitioner also contends that the Code embodies a principle that
secured creditors do not bear the costs of reorganization. It
derives this from the rule that general administrative expenses do
not have priority over secured claims.
See §§ 506(c),
507(a). But the general principle does not follow
Page 484 U. S. 379
from the particular rule. That secured creditors do not bear one
kind of reorganization cost hardly means that they bear none of
them. The Code rule on administrative expenses merely continues
pre-Code law. But it was also pre-Code law that undersecured
creditors were not entitled to post-petition interest as
compensation for the delay of reorganization.
See supra at
484 U. S. 373;
see also infra at
484 U. S. 381. Congress could hardly have understood
that the readoption of the rule on administrative expenses would
work a change in the rule on post-petition interest, which it also
readopted.
Finally, petitioner contends that failure to interpret § 362
(d)(1) to require compensation of undersecured creditors for delay
will create an inconsistency in the Code in the (admittedly rare)
case when the debtor proves solvent. When that occurs, 11 U.S.C. §
726(a)(5) provides that post-petition interest is allowed on
unsecured claims. Petitioner contends it would be absurd to allow
post-petition interest on unsecured claims, but not on the secured
portion of undersecured creditors' claims. It would be disingenuous
to deny that this is an apparent anomaly, but it will occur so
rarely that it is more likely the product of inadvertence than are
the blatant inconsistencies petitioner's interpretation would
produce. Its inequitable effects, moreover, are entirely avoidable,
since an undersecured creditor is entitled to "surrender or waive
his security and prove his entire claim as an unsecured one."
United States Nat. Bank v. Chase Nat. Bank, 331 U. S.
28,
331 U. S. 34
(1947). Section 726(a)(5) therefore requires no more than that
undersecured creditors receive post-petition interest from a
solvent debtor on equal terms with unsecured creditors, rather than
ahead of them -- which, where the debtor is solvent, involves no
hardship.
B
Petitioner contends that its interpretation is supported by the
legislative history of §§ 361 and 362(d)(1), relying almost
entirely on statements that "[s]ecured creditors should not
Page 484 U. S. 380
be deprived of the benefit of their bargain." H.R.Rep. No.
95-595, at 339; S.Rep. No. 95-989, at 53. Such generalizations are
inadequate to overcome the plain textual indication in §§ 506 and
362(d)(2) of the Code that Congress did not wish the undersecured
creditor to receive interest on his collateral during the term of
the stay. If it is at all relevant, the legislative history tends
to subvert, rather than support, petitioner's thesis, since it
contains not a hint that § 362(d)(1) entitles the undersecured
creditor to post-petition interest. Such a major change in the
existing rules would not likely have been made without specific
provision in the text of the statute,
cf. Kelly v.
Robinson, 479 U. S. 36,
479 U. S. 47
(1986); it is most improbable that it would have been made without
even any mention in the legislative history.
Petitioner makes another argument based upon what the
legislative history does not contain. It contends that the pre-Code
law gave the undersecured creditor relief from the automatic stay
by permitting him to foreclose; and that Congress would not have
withdrawn this entitlement to relief without any indication of
intent to do so in the legislative history unless it was providing
an adequate substitute, to-wit, interest on the collateral during
the stay.
The premise of this argument is flawed. As petitioner itself
concedes, Brief for Petitioner 20, the undersecured creditor had no
absolute entitlement to foreclosure in a Chapter X or XII case; he
could not foreclose if there was a reasonable prospect for a
successful rehabilitation within a reasonable time.
See, e.g.,
In re Yale Express System, Inc., 384 F.2d 990, 991-992 (CA2
1967) (Chapter X);
In re Nevada Towers Associates, 14
Collier Bankr.Cas. (MB) 146, 151-156 (Bkrtcy.Ct. SDNY 1977)
(Chapter XII);
In re Consolidated Motor Inns, 6 Collier
Bankr.Cas. (MB) 18, 31-32 (Bkrtcy.Ct. ND Ga.1975) (same). Thus,
even assuming petitioner is correct that the undersecured creditor
had an absolute entitlement to relief under Chapter XI, Congress
would have been faced with the choice between adopting the rule
from
Page 484 U. S. 381
Chapters X and XII or the asserted alternative rule from Chapter
XI, because Chapter 11 of the current Code "replaces chapters X, XI
and XII of the Bankruptcy Act" with a "single chapter for all
business reorganizations." S.Rep. No. 95-989, at 9;
see
also H.R.Rep. No. 95-595 at 223-224. We think § 362(d)(2)
indicates that Congress adopted the approach of Chapters X and XII.
In any event, as far as the silence of the legislative history on
the point is concerned, that would be no more strange with respect
to alteration of the asserted Chapter XI rule than it would be with
respect to alteration of the Chapters X and XII rule.
Petitioner's argument is further weakened by the fact that it is
far from clear that there was a distinctive Chapter XI rule of
absolute entitlement to foreclosure. At least one leading
commentator concluded that
"a Chapter XI court's power to stay lien enforcement is as broad
as that of a Chapter X or XII court and that the automatic stay
rules properly make no distinctions between the Chapters."
Countryman, Real Estate Liens in Business Rehabilitation Cases,
50 Am.Bankr.L.J. 303, 315 (1976). Petitioner cites dicta in some
Chapter XI cases suggesting that the undersecured creditor was
automatically entitled to relief from the stay, but the courts in
those cases uniformly found in addition that reorganization was not
sufficiently likely, or was being unduly delayed.
See, e.g., In
re Bric of America, Inc., 4 Collier Bankr.Cas. (MB) 34, 39-40
(Bkrtcy.Ct. MD Fla.1975);
In re O. K. Motels, 1 Collier
Bankr.Cas. (MB) 416, 419-420 (Bkrtcy.Ct. MD Fla.1974). Moreover,
other Chapter XI cases held undersecured creditors not entitled to
foreclosure under reasoning very similar to that used in Chapters X
and XII cases.
See In re Coolspring Estates, Inc., 12
Collier Bankr.Cas. (MB) 55, 60-61 (Bkrtcy.Ct. ND Ind.1977);
In
re The Royal Scot, Ltd., 2 Bankr.Ct. Dec. (CRR) 374, 376-377
(Bkrtcy.Ct. WD Mich.1976);
In re Mesker Steel, Inc., 1
Bankr.Ct. Dec. (CRR) 235, 236-237 (Bkrtcy.Ct. SD Ind.1974). The at
best divided authority under Chapter XI removes
Page 484 U. S. 382
all cause for wonder that the alleged departure from it should
not have been commented upon in the legislative history.
The Fifth Circuit correctly held that the undersecured
petitioner is not entitled to interest on its collateral during the
stay to assure adequate protection under 11 U.S.C. § 362(d)(1).
Petitioner has never sought relief from the stay under § 362(d)(2)
or on any ground other than lack of adequate protection.
Accordingly, the judgment of the Fifth Circuit is
Affirmed.
[
Footnote 1]
See, e.g., In re Findley, 76 B.R. 547, 555 (Bkrtcy.Ct.
ND Miss.1987) (6 1/2 months);
In re Efcor, Inc., 74 B.R.
837, 843-845 (Bkrtcy.Ct. MD Pa.1987) (4 1/2 months);
In re
Belton Inns, Inc., 71 B.R. 811,
818
(Bkrtcy.Ct. SD Iowa 1987) (1 year);
In re Louden, 69 B.R.
723, 725-726 (Bkrtcy.Ct. ED Mo.1987) (10 months);
In re Playa
Development Corp., 68 B.R.
549, 556 (Bkrtcy.Ct. WD Tex.1986) (7 1/2 months);
In re
Cablehouse, Ltd., 68 B.R. 309, 313 (Bkrtcy.Ct. SD Ohio 1986)
(11 1/2 months);
In re Pacific Tuna Corp., 48 B.R. 74,
78 (Bkrtcy.Ct. WD Tex.1985) (9 months);
In re Development,
Inc., 36 B.R. 998, 1005-1006 (Bkrtcy.Ct. Haw.1984) (6 months);
In re Boca Development Associates, 21 B.R. 624, 630
(Bkrtcy.Ct. SDNY 1982) (7 1/2 months);
In re Sundale
Associates, Ltd., 11 B.R. 978, 980-981 (Bkrtcy.Ct. SD
Fla.1981) (5 months);
In re Clark Technical Associates,
Ltd., 9 B.R. 738, 740-741 (Bkrtcy.Ct. Conn.1981) (9
months).
[
Footnote 2]
See, e.g., In re Anderson Oaks (Phase l) Limited
Partnership, 77 B.R.
108, 109, 110-113 (Bkrtcy.Ct. WD Tex.1987) ("immediately after
the bankruptcy filings");
In re New American Food Concepts,
Inc., 70 B.R. 254, 262 (Bkrtcy.Ct. ND Ohio 1987) (3 months);
In re 6200 Ridge, Inc., 69 B.R. 837, 843-844 (Bkrtcy.Ct.
ED Pa.1987) (3 months);
In re Park Timbers, Inc., 58 B.R.
647, 651 (Bkrtcy.Ct. Del.1985) (2 months);
In re Bellina's
Restaurants II, Inc., 52 B.R. 509, 512 (Bkrtcy.Ct. SD
Fla.1985) (1 month);
In re Anchorage Boat Sales, Inc., 4
B.R. 635, 641 (Bkrtcy.Ct. EDNY 1980) (4 months);
In re Terra
Mar Associates, 3 B.R. 462, 466 (Bkrtcy.Ct. Conn.1980) (2
months).