Default Interest Is Enforceable in Bankruptcy Except When It’s Not

Default interest is a very common feature in all manner of lending transactions in today’s market.  However, few legal issues have created more confusion or generated more litigation.  Bankruptcy courts, in particular, have struggled with the issue but have failed to develop a consistent framework.  There are many pitfalls but a conscientious lender can take steps to increase the likelihood of realizing the bargained for contract rate of default interest.

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John J. Hanley focuses his practice on first and second lien financings; private placements of debt and equity securities; and the purchase and sale of loans, securities, trade claims and other illiquid assets. His clients include business development companies, specialty lenders, investment banks, hedge funds, actively managed CLOs, special purpose vehicles, and other financial institutions.

Douglas Schneller handles a broad range of complex transactional matters involving bank finance and lending; restructuring, bankruptcy and insolvency; inter-creditor and subordination arrangements, including for mezzanine, leveraged, multi-lien and unitranche financings; claims analysis and reconciliation; and purchases and sales of par and distressed assets such as bank loans, notes, accounts receivable, trade claims, bankruptcy claims, and equity interests.