Oversecured Creditor's Right to Contractual Default-Rate Interest Allowed under State Law


Summary

This article discusses a Bankruptcy Appellate Panel's decision to allow an oversecured creditor's claim for interest at the contractual default rate. It is generally well understood that an oversecured creditor is entitled to interest and, to the extent provided for under a loan agreement, related fees and charges as part of its secured claim in a bankruptcy case. Although Section 506(b) of the Bankruptcy Code provides that fees, costs, or charges allowed as part of a secured claim must be reasonable, the provision does not expressly impose any restrictions on the amount or nature of interest allowable as part of a secured claim. A Bankruptcy Appellate Panel for the Eighth Circuit recently considered whether a secured creditor is entitled to contractual default-rate interest under Section 506(b).