Current Month (January 2026)
Recent Decisions Regarding Contract Interest Rates and Bar Dates
By Ashley Baird, New York University School of Law
This piece is part of a series of summaries of the leading cases decided in the last year and a half on bankruptcy.
In re Hertz Corporation, 120 F.4th 1181 (3d Cir. 2024)
Issues/Statutes: § 502(b)(2); Make-Whole Fees; Applicable Premiums; Contract Rates; Solvent Debtor; Definition of Interest
Hertz, the rental car giant, suffered serious financial troubles as a result of the COVID-19 pandemic and filed for Chapter 11 bankruptcy in 2020, seriously fearing insolvency. But as the economy bounced back, so did Hertz, and today it is solvent with a Chapter 11 plan promising to leave all of Hertz’s creditors unimpaired and, in fact, its stockholders richly rewarded. Among the creditors that Hertz claimed to leave unimpaired, however, were holders of unsecured bonds maturing annually from 2022 to 2028 (the “Noteholders”). Hertz repaid these bonds in full, prior to maturation, but (1) declined to pay the “make-whole fees” attendant upon the early pay-off of bonds, and which partially compensate Noteholders for lost interest income, and (2) paid interest at the lower federal judgment rate, not the contract-specified rate. These exceptions were permitted by the Bankruptcy Court, and the Noteholders, through Wells Fargo, appealed to the Third Circuit.
The “make-whole fees” that Hertz had agreed to pay Noteholders in the event of early repayment were deemed, by the Third Circuit, to be legally equivalent to interest. As § 502(b)(2) of the Bankruptcy Code prohibits claims for “unmatured interest” post-petition, the decision by Hertz to not pay Noteholders these fees (also called “Applicable Premiums”) was justified. Noteholders asked the court to distinguish these fees from interest, arguing that interest is uniquely a sort of fee that accrues slowly over time while borrowed money is used. But the court disagreed, opting for a broader definition of “interest” as compensation for the use or forbearance of money, which these fees surely are. The bond contracts themselves did not countenance Noteholders being paid in this circumstance, and as the court put it: “Contract law does not bind parties to promises they did not make.” The Third Circuit affirmed the lower court on this issue.
However, the Third Circuit reversed the lower court’s ruling that Hertz was not obligated to pay its Noteholders at the agreed-upon contract rate. Hertz is now a solvent business, able to repay its creditors, yet it chose to use the (lower) federal judgment rate in determining how much interest it owed its Noteholders. It gave the money it saved by doing so to stockholders as a dividend. While the arguments over authority were complex, the court simplified the issue by asking, “Can Hertz use the Bankruptcy Code to force the Noteholders to give up nine figures of contractually valid interest and spend that money on a massive dividend to the Stockholders? The answer is no.” A solvent business like Hertz is obligated to honor its bonds’ contract interest rates.
In re Ben Nye Co., 2025 WL 1693661 (B.A.P. 9th Cir. 2025)
Issues/Statutes: § 501(b)(9); Rule 3003(c)(3); Rule 7001(g); Bar Date; Discharge
The debtor in this case, Ben Nye Co., is a small business that is the subject of mounting claims of asbestos liability—despite pleading without contradiction that it had never manufactured any asbestos-related products—and that filed for subchapter V bankruptcy in March 2024.
In Chapter 11 bankruptcy, courts set “Bar Dates” (per § 501(b)(9) and Rule 3003(c)(3)) after which proofs of claim not timely filed may be disallowed. The purpose of the Bar Date, the Bankruptcy Appellate Panel of the Ninth Circuit noted, is “to enable the debtor and his creditors to know, reasonably promptly, what parties are making claims and in what general amounts.” Barring a party from making a claim in a bankruptcy, however, is not necessarily the same thing as discharging possible claims against the debtor, which is precisely the overstep that the Bankruptcy Court took in this case.
In addition to simply setting a Bar Date comporting with the bankruptcy rules, the Bankruptcy Court issued an injunction stating that any person, anywhere, who fails to enter a claim as a creditor prior to the Bar Date, “shall . . . be forever barred, estopped, and enjoined from asserting such a claim against the Debtor, their property, or their estates (or submitting a proof of claim with respect thereto).” This far overstepped the authority of the Bankruptcy Court, the Bankruptcy Appellate Panel of the Ninth Circuit held, violated Rule 7001(g), and misunderstood the purpose of Bar Dates, which are intended to ease logistical burdens, not reach legal conclusions: “Bar date orders cannot and should not affect the rights of creditors (if any) outside of bankruptcy; they only preclude non-filing creditors from participating in the bankruptcy—and only to the extent of voting and distribution.”
The relevant far-reaching sentence within the injunction was struck and modified by the Ninth Circuit, but otherwise the Bar Date was affirmed.
