| The last few years have seen an interesting array of cases addressing issues regarding interest rates in bankruptcy cases. This article provides a summary update on whether (1) the solvent-debtor exception survives in determining the appropriate post-petition rate that must be applied to unimpaired claims under a chapter 11 plan, (2) the solvent-debtor exception similarly requires the payment of makewholes, and (3) reinstated creditors are entitled to collect post-petition interest at the default rate.
Post-Petition Interest on Unsecured Claims and the Solvent-Debtor Exception
Under the Bankruptcy Code, interest on undersecured creditors’ claims ceases accruing interest as of the petition date. Recently, multiple courts have addressed the question of whether an unsecured creditor’s claim can be unimpaired under a plan if the treatment does not include post-petition interest at the contract rate.
Following a series of wildfires in California, PG&E filed bankruptcy due to expected liabilities. However, PG&E was solvent throughout the bankruptcy. Therefore, creditors argued that it had to pay post-petition interest at the contractual rate rather than the lower federal rate. Reversing both district and bankruptcy court, the Ninth Circuit ruled that (1) the “solvent-debtor exception” that expressly existed prior to the enactment of the Code and creates a carve-out to the post-petition interest ban was not abrogated by the Bankruptcy Code, and (2) unsecured creditors with unimpaired claims have a right to post-petition interest at the contractual rate. |
