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Commercial Law Litigation

Navigating the Bankruptcy Court's Power to Modify a Secured Creditor's Lien

This article focuses on the impact of the Bankruptcy Code's section 552, which addresses the effect of a bankruptcy filing on property acquired by the debtor after the filing of the bankruptcy case (referred to as "after-acquired property") and proceeds of pre-bankruptcy collateral.

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As a borrower approaches bankruptcy, secured creditors often believe that their existing liens and collateral packages will be respected by the bankruptcy court, absent a basis to challenge priority, perfection or some misconduct to justify equitable subordination. On the contrary, bankruptcy courts have the power to modify the scope of validly perfected liens.

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