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.
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. 370-380.
SCALIA, J., delivered the opinion for a unanimous Court.
H. Miles Cohn argued the cause and filed briefs for petitioner.
Leonard H. Simon argued the cause for respondent. With him on the brief were Daphne Levey and Timothy J. Henderson. *
[ Footnote * ] Briefs of amici curiae urging reversal were filed for the United States by Solicitor General Fried, Assistant Attorney General Willard, and Deputy Solicitor General Cohen; for the California League of Savings Institutions et al. by John A. Graham; for the National Commercial Finance Association by A. Bruce Schimberg, Rex E. Lee, J. Ronald Trost, Shalom L. Kohn, and Frank R. Kennedy; and for Thomas H. Jackson, pro se.
Briefs of amici curiae urging affirmance were filed for Global Marine Inc. by Harvey R. Miller, D. J. Baker, and Martin J. Bienenstock; and for the National Association of Credit Management et al. by Richard Levin and Kenneth N. Klee.
Raymond T. Nimmer, pro se, and Edward L. Ripley, pro se, filed a brief for themselves as amici curiae.
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 [484 U.S. 365, 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).
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 postpetition rents from the [484 U.S. 365, 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 postpetition 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.
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:
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, 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, 54 (1987); Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 631 -632 (1973); Jarecki v. G. D. Searle & Co., 367 U.S. 303, 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 postpetition interest. In relevant part it reads as follows:
Even more important for our purposes than 506's use of terminology is its substantive effect of denying undersecured creditors postpetition interest on their claims - just as it denies oversecured creditors postpetition 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 postpetition interest to be paid only out of the "security cushion," the undersecured creditor, [484 U.S. 365, 373] who has no such cushion, falls within the general rule disallowing postpetition 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 postpetition 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, 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 164, 166; Ticonic Nat. Bank v. Sprague, 303 U.S. 406, 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. [484 U.S. 365, 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 postpetition. Section 552(b) sets forth an exception, allowing postpetition "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 non-bankruptcy 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, 54 -56 (1979) (same rule under former Bankruptcy Act). Section 552(b) therefore makes possession of a perfected security interest in postpetition 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 [484 U.S. 365, 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 [484 U.S. 365, 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. 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. 2 [484 U.S. 365, 377]
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 [484 U.S. 365, 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:
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 [484 U.S. 365, 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 postpetition interest as compensation for the delay of reorganization. See supra, at 373; see also infra, at 381. Congress could hardly have understood that the readoption of the rule on administrative expenses would work a change in the rule on postpetition 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 postpetition interest is allowed on unsecured claims. Petitioner contends it would be absurd to allow postpetition 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, 34 (1947). Section 726(a)(5) therefore requires no more than that undersecured creditors receive postpetition 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.
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 [484 U.S. 365, 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 postpetition 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, 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 [484 U.S. 365, 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 [484 U.S. 365, 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
[ Footnote 2 ] See, e. g., In re Anderson Oaks (Phase I) 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). [484 U.S. 365, 383]