March 06, 2020 Articles

Every Penny Counts: Remember Prejudgment Interest When Pursuing Pre-Petition Causes of Action

In some instances, pre-petition claims represent a significant potential source of recovery for the debtor’s unsecured creditors.

By Anastasia L. McCusker and Daniel J. Zeller
In bankruptcy cases in which unsecured creditors are rarely paid in full, every penny counts.

In bankruptcy cases in which unsecured creditors are rarely paid in full, every penny counts.

Unsurprisingly, one meaningful factor influencing whether pre-petition claims are pursued as part of a debtor’s bankruptcy case (or as part of a confirmed plan) is the amount of recoverable damages. In order for a bankruptcy estate to expend resources or attract contingency counsel to prosecute a meritorious claim, the potential recovery must be worth the effort and time. When assessing recoverable damages, numerous questions generally come to mind: (i) what are the damages; (ii) what evidence is needed to prove the damages; (iii) are the damages collectible; (iv) who is liable for the damages; and (v) is there a material choice-of-law issue. Another possible component of damages is prejudgment interest. While prejudgment interest is commonly included in the standard damage recital for a pleading, it may not get much substantive attention before a judgment is on the horizon. Prejudgment interest should not be overlooked as an important component of claims held by a bankruptcy estate.

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