Judge Bluebond Rules that Attorneys Fees are Recoverable by Undersecured Credit That Makes 1111(b) Election

A undersecured creditor in a chapter 11 is permitted to elect to force the debtor to treat its undersecured claim as fully secured.  Does that mean then that the claim includes postpetition fees and   pursuant 506(b)?  Judge Sheri Bluebond has ruled that attorneys fees are recoverable but not postpetition interest.  Her opinion can be accessed here.   She writes:  “Two decisions bear directly on the answer to this question: Travelers Cas. & Sur. Co. of Am. v. PG&E, 549 U.S. 443, 127 S.Ct. 1199, 167 L.Ed.2d 178 (2007) and Infonet Mgmt. v. Centre Ins. Co. (In re SNTL Corp.), 571 F.3d 826 (9th Cir. 2009).”  Travelers of course is the Supreme Court ruling that the American rule of collecting attorneys fees applies in the bankruptcy world as a general rule.  SNTL holds that “’So long as the right to collect the fees existed prepetition, the fact that the fees were actually incurred during the postpetition period is not relevant to the determination of whether the creditor has an allowable pre-petition claim for the fees.’”  So the claim is allowed unless Section 502 disallows it.  So the claim of the creditor electing 1111(b) includes postpetition attorneys fees per SNTL but not interest because 502(b) says no unmatured interest and 506(b) postpetition interest only to oversecured creditors.

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