Cash collateral is defined as any negotiable assets that may be converted into liquid assets if necessary. Some of the examples of it include funds that are deposited in interest bearing accounts, documents of title, and investment securities. The concept of cash collateral is important in several different types of financial situations, including settling estates and in working through a bankruptcy.
When evaluating proceeds from cash, it is important to look at each asset and determine the amount of return that can reasonably be expected from the sale of the asset. This will mean understanding the current market value of pieces of property, as well as evaluating how much revenue could be generated from retaining the property and renting out the space. When considering the conversion of assets into cash, it is important to also think about the costs associated with converting the asset. The true cash collateral can only be determined by looking at the revenue from the sale, and deducting the costs associated with the task.
Cash collateral is an important aspect of settling an estate. Often, all assets are liquidated in order to settle any remaining expenses. Any fees or charges associated with selling the properties are paid from the proceeds, and the balance is then disbursed according to the terms of the instructions left for the settlement of the estate.
In the event of a bankruptcy, cash collateral is an important aspect of presenting an accurate picture of the financial condition related to the action. Depending on the type of bankruptcy that is being filed, conversion of assets into cash may be required. This collateral is then used to discharge part of the outstanding indebtedness, leaving the court to address the disposition of any remaining credit balance.
Outside of bankruptcy or settling an estate, the concept of cash collateral is also a helpful tool in understanding the current financial status of an individual or a business entity. Maintaining a balanced perspective of net worth can help the individual to develop future goals that will help to enhance the current level of financial security. At the same time, understanding cash collateral and how it relates to current assets can help prevent participation in financial deals that are not in line with those goals.
