| An oversecured creditor is generally entitled to post-petition interest, to the extent provided for under a loan agreement, as a part of its secured claim in a bankruptcy case. However, courts are split as to (1) whether or not the same applies to interest incurred at a contracted default rate when curing a monetary default through the debtor’s plan of reorganization, and (2) whether equitable considerations allow courts to disallow interest at the agreed-upon, contractual default rate, despite the provisions of §§ 506(b) and 1123(d).
Entz-White, Ron Pair and the Bankruptcy Reform Act
The Ninth Circuit kicked off this 30+-year debate with its decision in Entz-White, holding that the Bankruptcy Code’s cure provisions entitled a debtor “to nullify all consequences of default, including avoidance of default penalties such as higher interest” upon cure of its default through its plan of reorganization. As its basis, the Ninth Circuit leaned heavily on § 1124’s cure provisions, as the Code lacked a clear definition of “cure” as used in § 1123. While this pro-debtor view was in the minority, several courts have followed the Ninth Circuit’s approach.
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