IBA Compliance Connection

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If a loan borrower has declared Chapter 13 bankruptcy, and we have placed the loan on non-accrual status, when can we start accruing interest again? Can we reinstate interest that has accrued in the time after the borrower declared bankruptcy?

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The allowance of postpetition interest on your unsecured claim depends on the reorganization plan and on the debtor’s solvency. The Bankruptcy Code states that an unsecured creditor may receive interest “at the legal rate,” if the debtor is solvent, but the applicability of that section to Chapter 13 is debatable. 11 USC 726(a)(5)see In re Wright, 300 B.R. 453, 463 (Bankr. N.D. Ill. 2003).