Bankruptcy Section 506(c) Surcharge on Secured Collateral

Seeking or Defeating Recovery of Expenses for Preserving or Disposing of Collateral

Recording of a 90-minute CLE webinar with Q&A

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Conducted on Tuesday, December 17, 2013

Recorded event now available

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Course Materials

This CLE course will provide counsel with an understanding of the scope and application of Section 506(c) allowing the debtor or trustee to recover from the secured lender costs and expenses of preserving/disposing of the estate’s asset. The panel will explain surcharge on collateral, the debtor’s burden under 506(c) and recent case law, and outline best practices for secured lenders to defeat a surcharge motion.

Description

When a Chapter 11 filing does not achieve the goal of maximizing recovery for all stakeholders, including the debtor’s professionals, debtors and trustees may attempt to recover post-petition expenses for disposing of the estate property by “surcharging” the secured creditor’s collateral under Section 506(c).

The debtor’s burden of surcharging collateral is high. The benefit to the secured creditor has to be direct and quantifiable. The debtor must show that its actions were necessary and resulted in a benefit in excess of what the creditor would have received without the debtor’s action.

A recent Tenn. case illustrates the burden. The debtor filed Ch.11 to stop foreclosure so it could dispose of the collateral in a 363 sale. The court denied the debtor’s surcharge motion finding the attempt to achieve the highest price in a 363 sale, while reasonable, was not necessary. The Third Circuit recently affirmed its view that collateral surcharges are appropriate only in limited circumstances.

Listen as our authoritative panel of bankruptcy practitioners discusses the parameters of Section 506(c) surcharge motions, the debtor or trustee’s burden to satisfy the requirements of 506(c), and best practices for secured lenders to defeat a surcharge motion.

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Outline

  1. Overview of Section 506(c) surcharge on collateral
  2. Scope of Section 506(c) and the debtor or trustee’s burden of proof
  3. Recent case law
  4. Best practices for defeating a surcharge motion

Benefits

The panel will review these and other key questions:

  • What risks do the debtor’s professionals face in receiving compensation for its services in assisting the debtor in disposing of the estate property?
  • How have courts interpreted the scope of Section 506(c) and what the debtor or trustee much demonstrate to obtain a surcharge on collateral?
  • What measures can secured creditors take to minimize risk of surcharge?
  • Should secured creditors seek 506(c) waivers in financing orders and what will courts look at in determining the enforceability of such waivers?

Following the speaker presentations, you'll have an opportunity to get answers to your specific questions during the interactive Q&A.

Faculty

Jan Hayden
Jan Hayden
Shareholder
Baker Donelson

Ms. Hayden has over 30 years of experience in handling bankruptcy and insolvency matters. Her practice is focused on...  |  Read More

Erno Lindner
Erno Lindner
Baker Donelson

Mr. Lindner concentrates his practice in bankruptcy and general commercial litigation matters. He helps financial...  |  Read More

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