No, we do not believe your bank can assess late fees, even though such fees may be allowed by the terms of the loan agreement, because your bank’s claim is “undersecured,” meaning the value of the collateral (the vehicle securing the loan) is less than the value of your bank’s claim (the unpaid loan amount).

The U.S. Bankruptcy Code permits creditors to recover “reasonable fees, costs, or charges” provided in a loan agreement, but only in cases where the creditor’s claim is “oversecured” — in other words, secured by property with a value that exceeds the creditor’s claim. Put another way, only an oversecured creditor may be entitled collect late fees allowed by a loan agreement, and only to the extent such fees are covered by the value of the collateral. In this case, because the collateral value is less than the amount of your claim, we do not believe that a bankruptcy court would permit your bank to successfully make a claim for late fees.

Additionally, we strongly recommend that your bank consult with bankruptcy counsel regarding this and any other bankruptcy matters.

For resources related to our guidance, please see:

• U.S. Bankruptcy Code, 11 USC 506(b) (“To the extent that an allowed secured claim is secured by property the value of which, after any recovery under subsection (c) of this section, is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.”)