11 U.S.C. Section 363 -- Use, Sale, or Lease of Property

What Is Section 363?

Section 363 of Title 11 of the United States Code (Use, Sale, or Lease of Property) is a foundational provision of the Bankruptcy Code. It governs how property of the bankruptcy estate can be used, sold, or leased during the case. This section is particularly important in Chapter 11 reorganizations, where 363 sales have become a common tool for selling businesses or major assets.

Key Provisions of Section 363

Section 363 has several critical components:

• 363(b) -- Sales Outside Ordinary Course: The trustee or debtor in possession may sell property of the estate outside the ordinary course of business after notice and a hearing. The court must find the sale is in the best interest of the estate.
• 363(c) -- Ordinary Course Use: Property of the estate may be used in the ordinary course of business without court approval. This lets businesses continue operating during the case.
• 363(d) -- Adequate Protection: When the estate uses, sells, or leases property subject to a lien, the secured creditor is entitled to adequate protection of its interest -- often through cash payments, replacement liens, or other protections.
• 363(f) -- Free and Clear Sales: The estate can sell property free and clear of all liens and interests if certain conditions are met: the sale price exceeds the aggregate of all liens, the lienholder consents, the lien is in bona fide dispute, or the lienholder could be compelled to accept a money satisfaction.
• 363(m) -- Good Faith Purchaser Protection: A sale to a good faith purchaser cannot be reversed on appeal unless the appeal was stayed before the sale closed.

How This Affects You

Section 363 affects different parties in different ways:

• Individual debtors: Your home, car, and other property become property of the estate at filing. The trustee's authority to sell comes from 363 (but exemptions under Section 522 protect your share).
• Business debtors: A debtor in possession can continue operating the business and using assets in the ordinary course. For major transactions (selling the business, closing locations, significant asset sales), 363(b) court approval is required.
• Creditors: Secured creditors have the right to adequate protection when their collateral is being used or sold. This is enforced through Section 363(e) and often requires motion practice.
• Purchasers: Buying assets through a 363 sale provides strong protections: free and clear of liens, good faith purchaser status, and finality under 363(m).

Related Bankruptcy Code Sections

Section 363 works in conjunction with several other provisions of the Bankruptcy Code:

• Section 506 -- Determination of secured status (valuation for 363 sales)
• Section 365 -- Executory contracts (often assigned in 363 sales)
• Section 1129 -- Plan confirmation (alternative to 363 sale)

Understanding how these sections interact is critical for anyone navigating the bankruptcy process, whether as a debtor, creditor, or attorney.