This Article formulates a basic framework to determine interest and discount rates applicable to secured claims in bankruptcy. It reviews the function of the interest rate from a macroeconomic perspective. The time value of money concept is explained, showing that the later a cash flow comes in time, the less it is worth. The treatment that debtors and creditors receive during the gap period (the time between the filing of the bankruptcy petition and the confirmation of the plan) is evaluated by examining how courts have struggled with the Bankruptcy Code to award post-petition interest. The author concludes by developing a method for determining the appropriate interest or discount rate applicable to a secured claim by referring to the corporate bond market.
Aneel M. Pandey,
Determining Interest and Discount Rates Applicable to Secured Claims in the Specter of Bankruptcy Law,
San Diego L. Rev.
Available at: https://digital.sandiego.edu/sdlr/vol30/iss3/4