Chapter 9 - § 9.9 • CLAIMS

• Jurisdiction: Colorado

§ 9.9 • CLAIMS

§ 9.9.1—Secured Claims

Oversecured Creditors

To the extent a creditor is oversecured, the creditor is entitled to recover interest, fees, and costs of collection if provided under the security documents. 11 U.S.C. § 506(b). Post-petition interest will accrue regardless of whether the agreement provides for it. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235 (1989); but see 11 U.S.C. § 1322(e) (chapter 13 cure amounts dictated by agreement and applicable law).

Most bankruptcy courts recognize a presumption for the allowability of default interest rates, provided that the rates are enforceable under state law. Hepner v. PWP Golden Eagle Tree, LLC (In re K&J Props.), 338 B.R. 450 (Bankr. D. Colo. 2005) (allowing a default interest rate of 36 percent on an oversecured claim); In re Consolidated Operating Partners L.P., 91 B.R. 113, 117 (Bankr. D. Colo. 1988) (4 percent increase upheld); In re Wood Family Interest Ltd., 135 B.R. 407 (Bankr. D. Colo. 1989) (12.5 percent increase upheld); but see In re Hollstrom, 133 B.R. 535 (Bankr. D. Colo. 1991) (disallowing a default rate of 36 percent).

Other "reasonable" fees and costs, such as attorney fees, facility fees, prepayment fees, termination fees, and late payment fees, must be provided for in the agreement to be allowed under 11 U.S.C. § 506(b). A split of authority exists regarding allowance of prepayment fees. Many courts hold that reasonable prepayment premiums are generally enforceable, noting that such premiums are not unusual in commercial loans between sophisticated business entities. In re Skyler Ridge, 80 B.R. 500 (Bankr. C.D. Cal. 1987); In re United Merchants & Manufacturers, Inc., 674 F.2d 134 (2d Cir. 1982). Other courts reason that 11 U.S.C. § 506(b)'s reasonableness term permits secured creditors to collect only the difference between the contract interest rate and the market rate, over the term of the loan. In re 433 South Beverly Drive, 117 B.R. 563 (Bankr. C.D. Cal. 1990).

Claims Secured by a Chapter 13 Debtor's Residence

Chapter 13 of the Bankruptcy Code provides that a chapter 13 plan may modify the rights of holders of secured claims, unless the claim is secured only by a security interest in real property that is the debtor's principal residence. 11 U.S.C. § 1322(b)(2). In other words, a chapter 13 debtor may not alter payment terms or the debt secured on his or her home. However, a chapter 13 plan may provide for payments to cure any default on a claim that is secured by the debtor's principal residence. 11 U.S.C. § 1322(b)(5). In addition, in chapter...