Opinion ID: 472139
Heading Depth: 2
Heading Rank: 4

Heading: Interest Provisions--Procedure in Sec. 506(b).

Text: 116 Awarding periodic postpetition interest payments to an undersecured creditor also seems inconsistent with the procedural mechanisms of Secs. 506(b) and 506(c). Under Sec. 506(c), the debtor may recover from property securing a creditor's allowed secured claim the reasonable and necessary costs and expenses of preserving or disposing of the property, to the extent of any benefit to the creditor. If, after reducing the amount of the allowed secured claim by the amount of that recovery, the creditor is oversecured, it is entitled to interest at the contract rate on its net allowed secured claim. Sec. 506(b). The timing of the payment of accrued interest to an oversecured creditor (at the conclusion of the proceeding) is doubtless based on the fact that it is not possible to compute the amount of Sec. 506(c) recovery (and, accordingly, the amount of the net allowed secured claim on which interest is computed) until the termination of the proceeding. 47 Consider by contrast the happier lot of the undersecured creditor under the American Mariner interpretation of Sec. 361. Such a creditor is entitled to periodic interest payments on the value of its collateral, theoretically at the market rate (which may exceed the contract rate), without deduction for the Sec. 506(c) recovery that cannot be computed until the termination of the proceeding. For example, in the case of collateral with a relatively short useful life and high costs of preserving the property, an undersecured creditor may be considerably better off receiving postpetition interest payments at the market rate on the value of the collateral (even if valued on a liquidation basis), than an oversecured creditor which is able to collect interest at the contract rate at the conclusion of the proceeding on what may by that time be a substantially reduced net allowed secured claim. Such a result, certainly conceivable under American Mariner, seems unusual. 117