Prepayment premiums (also referred to as make-whole premiums) are a common feature in loan documents, allowing lenders to recover a lump-sum amount if a borrower pays off loan obligations prior to maturity, effectively compensating lenders for yield that they would have otherwise received absent prepayment.  As a result of the widespread use of such provisions, three circuit courts of appeal – the U.S. Court of Appeal for the Second, Third and Fifth Circuit – have recently had to address the enforceability of prepayment provisions in bankruptcy.  A quick review of these cases reveals a central theme: the enforceability of such a premium will likely turn on contract-specific language, and, in particular, whether the governing agreements specifically address payment following bankruptcy, including the effects of acceleration caused by bankruptcy.
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Continue Reading Prepayment Premium/Make-Whole Enforceability in Bankruptcy: The Details Matter