Equity Cushion

A theory adopted by some bankruptcy courts to determine whether there is cause to lift the automatic stay (www.practicallaw.com/4-382-3248) with respect to a secured creditor (www.practicallaw.com/0-382-3801) for lack of adequate protection (www.practicallaw.com/8-382-3213). An equity cushion exists if the value of the collateral (www.practicallaw.com/3-382-3343) exceeds the value of the creditor's claim (www.practicallaw.com/4-382-3333) (the creditor is oversecured). The excess value, if any, is treated as an equity cushion which sufficiently protects the creditor without the need for adequate protection. Any junior liens (www.practicallaw.com/8-382-3581) on the property are not considered in determining whether there is an equity cushion because they will be subordinated (www.practicallaw.com/5-382-3851) to the liens of senior creditors.

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