Allowing Claims Flashcards

1
Q

What is the interest relevant provision for Ch 11? Ch 7?

A

502(b)2 excludes claims for unmeasured interest

726 allows for payment of post-petition interest at the legal rate before $ goes to the debtor

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2
Q

Can unsecured creditors collect post-petition interest in Ch11? At what rate?

A

Generally no - 502(b)2
If the principal of unsecured debts can be paid (debtor is solvent) most courts will allow collection of post-petition interest before the debtor gets $.
The rate is probably either the rate set by state statute or the contract rate

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3
Q

Can unsecured creditors collect post-petition interest in Ch7? At what rate?

A

Yes (if there is enough $ to pay all of the allowed claims and $ is about to go to the debtor under 726)
The “legal rate” is allowed which is usually the rate set by state statute for judgments but if that’s too low courts will use the contract rate

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4
Q

Can senior creditors collect post-petition interest from subordinated creditors?

A

Yes - some circuits still require King Resources’ clear statement despite 510(a) in the new bankruptcy code

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5
Q

Can guarantors be forced to pay interest due on guaranteed debt?

A

Yes (at least of the guaranty agreement is as strong as the one in Bruno)

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6
Q

Can over secured creditors collect interest/fees post-petition? What rate?

A

Yes - to the extent of the over security.
Ron Pair says the contract rate is not required, but there is a presumption in favor of the contract rate, penalty rates are also allowed if common for the industry

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7
Q

Can underscured creditors collect post-petition interest as an adequate protection payment?

A

No - Timbers

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8
Q

What is the end game solution to collecting post-petition interest?

A

Use an SPV

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9
Q

Is OID allowed as a bankruptcy claim?

A

No - unless Chateaugay

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10
Q

Can make whole provisions increase the bankruptcy claim?

A

Circuit split hinging on if the bankruptcy’s acceleration is the equivalent to a redemption and if the redemption was voluntary

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11
Q

What interest rate is used to discount the value of a cramdown?

A

In Till SCOTUS said a prime plus formula applied in the context of individual bankruptcies
In MPM Sillicones the 2nd circuit said a prime plus rate was too low for corporate bankruptcies and deferred to the market rate as long as there is an efficient market

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12
Q

What does bankruptcy do to all claims?

A

accelerates them. Equitable claims have to be monetized

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13
Q

Given an example of how the definition of senior debt in an indenture is very important

A

In drum financial the senior debt provision was opt-in, but in WT Grant it was opt-out which makes a huge difference if substantively consolidated

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14
Q

What is the value of a secured creditor’s allowed claim?

A

See 506. The REPLACEMENT VALUE of the collateral per SCOTUS (not obvious from the text). Any debt in excess of the replacement value is unsecured

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15
Q

Would you rather be secured or senior?

A

Might rather be senior because if the collateral value has declined significantly pre-bankruptcy, most of the claim could be unsecured. Could also be Senior Secured

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16
Q

why is setoff out of place in bankruptcy?

A

It makes the estate the loser and distorts a pro rata distribution of unsecured claims. Encourages firms to extend more credit to the debtor if they know they can set off (and these may not actually benefit the estate)

17
Q

What are the two limitations to set off?

A

The debt owed to the debtor cannot be acquired within 90 days of bankruptcy while the debtor is insolvent or after the commencement of the case