In the consumer loan context, one issue that frequently arises between creditors and debtors is whether the debtor has made a timely payment on his or her account. Both the Truth in Lending Act (“TILA”) and Regulation Z, which implements TILA, speak to this issue, but appear to contradict each other when it comes to credit card accounts.
In AMR Corporation, et al., Debtors, Case No. 12-3967, 2013 WL 1339123 (S.D.N.Y. April 3, 2013), the United States District Court for the Southern District of New York acknowledged that to be granted relief from the automatic stay under 11 U.S.C. § 362(d), a secured creditor has the initial burden to show that there has been a decline—or at least a risk of decline—in the value of its collateral.
Only then will the burden shift to the debtor to prove that the value of the collateral is not, in fact, declining. On the other hand, for purposes of adequate protection under 11 U.S.C. § 363(e), the secured creditor need only establish the validity, priority or extent of its interest in the collateral. At that point, the debtor bears the burden of proof under § 363(e). The distinction between the respective burdens of proof in §§ 362(d) and 363(e) can be a significant consideration for the formulation of a secured creditor’s strategy at the outset of a chapter 11 case.