The default rule in bankruptcy law is that when a debtor files for bankruptcy, interest ceases to accrue on their unsecured claims. This general principle is subject to an exception known as the solvent debtor exception. Under this exception, solvent debtors are required to pay post-petition interest on their outstanding claims, even after filing for bankruptcy. Section 726(a)(5) of the Bankruptcy Code states that solvent debtors must pay interest at “the legal rate.” However, the Bankruptcy Code does not define what the legal rate is, and courts have disagreed over whether it applies to both impaired and unimpaired claimants.
This article analyzes the post-petition interest rate that solvent debtors must pay to unimpaired claimants. Part I analyzes whether the solvent debtor exception survived the passing of the Bankruptcy Code. Part II analyzes the definition of the legal rate and its potential application to unimpaired claimants.