Determining The Appropriate Interest Rate Under Till in a Bankruptcy Proceeding

C. Paul Wazzan, Berkeley Research Group, LLC

Abstract

The determination of the appropriate rate of interest in a bankruptcy proceeding is guided by the United States Supreme Court’s decision in Till v. SCS Credit Com. which establishes a formula approach and states one should begin with the Prime Rate and then consider: 1) the circumstances of the bankruptcy estate; 2) the nature of the security; 3) the duration of the reorganization plan; and 4) the feasibility of the reorganization plan. The Supreme Court decision does not specify exactly what these four factors consist of. This paper attempts to superimpose economic principles on the Till decision and provide legal scholars and practitioners with a formal (though not necessarily exhaustive) list of economic variables to consider under each factor.