Entitlement to Interest Under the Bankruptcy Code

Except for a qualification introduced by the Bankruptcy Reform Act of 1994, the right to interest under the Bankruptcy Code is most easily viewed from three perspectives: (1) interest accrued prior to the filing of a petition under the Bankruptcy Code (prepetition interest), (2) interest accrued after the filing of a petition but prior to the effective date of a reorganization plan (pendency interest), and (3) interest to accrue under the terms of a reorganization plan (plan interest). As discussed in part II, prepetition interest is allowable, generally to the extent and at the rate permitted under applicable non-bankruptcy law. Part III explores pendency interest, which is generally not allowed, except to the extent permitted under the well-established exceptions for a solvent debtor (at the "legal rate") and for an over-secured creditor (in most instances at the rate provided by applicable non-bankruptcy law). Part IV discusses plan interest, which is provided for under the reorganization chapters of the Code at the current market rate in order to assure that deferred payments under a reorganization plan provide for the present value of certain minimum amounts required to be paid under the plan.