Post-Petition vs. Pre-Petition Interest: 5 Key Differences
Post-Petition Interest vs. Pre-Petition Interest: Key Differences
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Accrual Period:
- Pre-Petition Interest: Accrues before the bankruptcy petition is filed. It is part of the claim that creditors have against the debtor at the time of the bankruptcy filing. 8
- Post-Petition Interest: Accrues after the bankruptcy petition is filed. It is generally disallowed under Section 502(b)(2) of the Bankruptcy Code, except in specific circumstances such as oversecured creditors or solvent debtor cases. 24
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Entitlement:
- Pre-Petition Interest: Generally included in the claim amount and treated similarly to the principal debt. It is considered part of the "claim" as defined by the Bankruptcy Code. 8
- Post-Petition Interest: Not automatically included in the claim amount. Creditors must meet specific conditions to be entitled to post-petition interest, such as being oversecured or in cases where the debtor is solvent. 24
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Applicable Rate:
- Pre-Petition Interest: Typically calculated at the contract rate specified in the agreement between the debtor and creditor.
- Post-Petition Interest: The applicable rate can vary. For oversecured creditors, it is often the contract rate. For unsecured creditors in solvent debtor cases, courts have split on whether the contract rate or the federal judgment rate should apply. 157
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Purpose:
- Pre-Petition Interest: Reflects the cost of borrowing and is part of the contractual agreement between the debtor and creditor.
- Post-Petition Interest: In cases where it is allowed, it ensures that creditors are not disadvantaged by the delay in payment caused by the bankruptcy process. It is particularly relevant in solvent debtor cases to ensure equitable treatment of creditors. 16
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Legal Basis:
- Pre-Petition Interest: Based on the contractual agreement and included in the claim under Section 101(4) of the Bankruptcy Code.
- Post-Petition Interest: Governed by specific provisions of the Bankruptcy Code, such as Section 506(b) for oversecured creditors and equitable principles in solvent debtor cases. 24