Brooklyn Journal of Corporate, Financial & Commercial Law


Matthew Killip

First Page



Capital markets, reliant on a framework of transactional predictability and legal surety, face a nuanced challenge arising from the U.S. Bankruptcy Code’s provisions for solvent debtors in Chapter 11 cases. This challenge is the precise methodology for calculating post-petition interest rates on claims of unimpaired, unsecured creditors—a calculation that hinges on whether to apply the contract, state law, or the federal judgment rate. Section 502(b)(2) of the Bankruptcy Code generally prohibits the accrual of interest after a bankruptcy filing. However, this ban is circumvented when the debtor is solvent—the so-called “solvent debtor exception.” This exception, stemming from pre-Bankruptcy Code practice, is not comprehensively addressed in the current Bankruptcy Code. Although the exception holds, the Bankruptcy Code’s language remains ambiguous regarding the specific interest rate applicable in Chapter 11 proceedings. Determination of this rate carries significant financial implications, with the potential to materially alter creditor recoveries. Lack of statutory clarity has resulted in numerous judicial decisions where similarly situated creditors have been treated disparately. Congressional silence on the specific rate for post-petition interest in Chapter 11 solvent bankruptcies has created a cacophony of legal interpretations and disrupted the Bankruptcy Code’s intended balance. To restore harmony and efficiency within credit markets, urgent legislative action is required. This initiative should take the form of a codified directive that would clarify the Bankruptcy Code’s silence and affirm, unambiguously, the appropriate post-petition interest rate due to unimpaired, unsecured creditors in solvent debtor actions.