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January, 2015

SECURED CLAIMS IN BANKRUPTCY: Some Preliminary Points 2

Suppose that the reason that certain lenders will not lend without a security interest is that security interests afford the lender priority in bankruptcy over the claims of unsecured creditors. Currently, secured claims do not get full priority in bankruptcy. …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: Some Preliminary Points

The Availability of Secured Credit Under Partial Priority One argument against partial priority is that certain lenders will not lend at any interest rate unless they have full priority in the collateral that is subject to the security interest. The …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: ON THE COST AND AVAILABILITY OF FINANCING UNDER PARTIAL PRIORITY 2

Second, the magnitude of the effect of a partial priority rule on the financing of projects will depend on the degree to which the rule continues to respect priority. Suppose that under our current ad hoc system of partial priority, …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: ON THE COST AND AVAILABILITY OF FINANCING UNDER PARTIAL PRIORITY

Why Not Partial Priority Outside of Bankruptcy? The rules we describe would apply in bankruptcy. However, it is important to emphasize that we are not advocating, as others have suggested, that partial priority apply only in bankruptcy. If partial priority …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: Consensual Priority Rule

In The Uneasy Case and this paper, we have argued that foil priority is inconsistent with the general commercial law principle against nonconsensual subordination. The fixed-fraction priority rule would also allow nonconsensual subordination, although to a lesser degree than full …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: ON THE DESIGN OF PARTIAL-PRIORITY RULES 6

Under the adjustable-priority rule, the creditor’s claim would be treated as unsecured for the purpose of determining the nonadjusting creditor’s share before application of the rule of full priority. As a result, the nonadjusting creditor in this example would be …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: ON THE DESIGN OF PARTIAL-PRIORITY RULES 5

The other partial priority rule we put forward in The Uneasy Case is the adjustable-priority rule.139 Under the adjustable-priority rule, claims of nonadjusting creditors would not be subordinated to secured claims with respect to which they were nonadjusting. In other …Continue reading →

SECURED CLAIMS IN BANKRUPTCY: ON THE DESIGN OF PARTIAL-PRIORITY RULES 4

Assume that the creditor has a security interest with respect to all $1.2 million of the borrower’s assets. Its secured claim—which is the lesser of the amount owed and the value of the collateral—would thus be $1 million. Under a …Continue reading →