TEA.12.2

Description

With the onset of the Great Recession, the number of U.S. bankruptcy filings increased dramatically. Total filings grew from 617,660 in 2006 to 1,593,081 in 2010. Even after the end of the recession, filings remain at more than one million per year. The majority of these filings move quickly through the courts and are resolved without much controversy. In some cases, particularly business related matters, the debtor and creditors are not able to successfully negotiate the terms for settling outstanding claims. If the parties cannot agree, a contested hearing is held to argue differences before a bankruptcy judge. In this contested or “cram down” hearing, experts may be used to assist the judge in a number of areas including determining the value of collateral, the ability of the debtor to make the proposed payments, or the appropriate interest rate to be applied to debt that will be repaid over time. An expert seeking to opine on the appropriate interest rate must be aware of the methods allowed by the bankruptcy courts and the decisions which provide judicial insight to the application of these methods. This article provides an overview of the four methods discussed by the Supreme Court and their theoretical and practical application.