Ultra Petroleum Corp. v. Ad Hoc Comm. of Unsecured Creditors of Ultra Res., Inc. (In Re Ultra Petroleum Corp.)

Case: 17-20793 Document: 00514799021 Page: 1 Date Filed: 01/17/2019

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
January 17, 2019
No. 17-20793
Lyle W. Cayce
Clerk
In re: ULTRA PETROLEUM CORPORATION; KEYSTONE GAS
GATHERING, L.L.C.; ULTRA RESOURCES, INCORPORATED; ULTRA
WYOMING, INCORPORATED; ULTRA WYOMING LGS, INCORPORATED;
UP ENERGY CORPORATION; UPL PINEDALE, L.L.C.; UPL THREE
RIVERS HOLDINGS, L.L.C.,

Debtors,

ULTRA PETROLEUM CORPORATION; KEYSTONE GAS GATHERING,
L.L.C.; ULTRA RESOURCES, INCORPORATED; ULTRA WYOMING,
INCORPORATED; ULTRA WYOMING LGS, INCORPORATED; UP
ENERGY CORPORATION; UPL PINEDALE, L.L.C.; UPL THREE RIVERS
HOLDINGS, L.L.C.,

Appellants,

v.

AD HOC COMMITTEE OF UNSECURED CREDITORS OF ULTRA
RESOURCES, INCORPORATED; OPCO NOTEHOLDERS,

Appellees.

Appeal from the United States Bankruptcy Court
for the Southern District of Texas

Before DAVIS, ENGELHARDT, and OLDHAM, Circuit Judges.
ANDREW S. OLDHAM, Circuit Judge:
 Case: 17-20793 Document: 00514799021 Page: 2 Date Filed: 01/17/2019

No. 17-20793
These bankruptcy proceedings arise from exceedingly anomalous facts.
The debtors entered bankruptcy insolvent and now are solvent. That alone
makes them rare. But second, the debtors accomplished their unlikely feat by
virtue of a lottery-like rise in commodity prices. The combination of these
anomalies makes these debtors as rare as the proverbial rich man who
manages to enter the Kingdom of Heaven.
The key legal question before us is whether the rich man’s creditors are
“impaired” by a plan that paid them everything allowed by the Bankruptcy
Code. The bankruptcy court said yes. In that court’s view, a plan impairs a
creditor if it refuses to pay an amount the Bankruptcy Code independently
disallows. In reaching that conclusion, the bankruptcy court split from the
only court of appeals to address the question, every reported bankruptcy court
decision on the question, and the leading treatise discussing the question. We
reverse and follow the monolithic mountain of authority holding the Code—not
the reorganization plan—defines and limits the claim in these circumstances.
Because the bankruptcy court saw things differently, it ordered the
debtors to pay certain creditors a contractual Make-Whole Amount and post-
petition interest at a contractual default rate. We vacate and remand those
determinations for reconsideration.
I.
Ultra Petroleum Corporation (“Petroleum”) is an oil and gas exploration
and production company. To be more precise, it’s a holding company.
Petroleum’s subsidiaries—UP Energy Corporation (“Energy”) and Ultra
Resources, Inc. (“Resources”)—do the exploring and producing. Resources took
on debt to finance its operations. Between 2008 and 2010, Resources issued
unsecured notes worth $1.46 billion to various noteholders. And in 2011, it
borrowed another $999 million under a Revolving Credit Facility. Petroleum
and Energy guaranteed both debt obligations.
2
 Case: 17-20793 Document: 00514799021 Page: 3 Date Filed: 01/17/2019

No. 17-20793
In 2014, crude oil cost well over $100 per barrel. But then Petroleum’s
fate took a sharp turn for the worse. Only a year and a half later, a barrel cost
less than $30. The world was flooded with oil; Petroleum and its subsidiaries
were flooded with debt. On April 29, 2016, the companies voluntarily
petitioned for reorganization under Chapter 11. See 11 U.S.C. § 301(a). No
one argues the companies filed those petitions in bad faith. See id. § 1112(b).
During bankruptcy proceedings, however, oil prices rose. Crude oil
approached $80 per barrel, and the Petroleum companies became solvent
again. So, the debtors proposed a rare creature in bankruptcy—a
reorganization plan that (they said) would compensate the creditors in full. As
to creditors with claims under the Note Agreement and Revolving Credit
Facility (together, the “Class 4 Creditors”), the debtors would pay three sums:
the outstanding principal on those obligations, pre-petition interest at a rate
of 0.1%, and post-petition interest at the federal judgment rate. In re Ultra
Petroleum Corp., No. 4:16-bk-32202, ECF No. 1308-1 at 25–26 (Bankr. S.D.
Tex. 2017). Accordingly, the debtors elected to treat the Class 4 Creditors as
“unimpaired.” Therefore, they could not object to the plan. 11 U.S.C. § 1126(f ).
The Class 4 Creditors objected just the same. They insisted their claims
were impaired because the plan did not require the debtors to pay a contractual
Make-Whole Amount and additional post-petition interest at contractual
default rates.
Under the Note Agreement, prepayment of the notes triggers the Make-
Whole Amount. That amount is designed “to provide compensation for the
deprivation of ” a noteholder’s “right to maintain its investment in the Notes
free from repayment.” A formula defines the Make-Whole Amount as the
amount by which “the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal” exceeds the notes’ “Called
Principal.” Remaining scheduled payments include “all payments of [the]
3
 Case: 17-20793 Document: 00514799021 Page: 4 Date Filed: 01/17/2019

No. 17-20793
Called Principal and interest . . . that would be due” after prepayment (if the
notes had never been prepaid). And the discounted value of those payments is
keyed to a “Reinvestment Yield” of 0.5% over the total anticipated return on
comparable U.S. Treasury obligations.
Under the Note Agreement, petitioning for bankruptcy automatically
renders the outstanding principal, any accrued interest, and the Make-Whole
Amount “immediately due and payable.” Failure to pay immediately triggers
interest at a default rate of either 2% above the normal rate set for the note at
issue or 2% above J.P. Morgan’s publicly announced prime rate, whichever is
greater.
The Revolving Credit Facility does not contain a make-whole provision.
But it does contain a similar acceleration clause that made the outstanding
principal and any accrued interest “automatically . . . due and payable” as soon
as Resources petitioned for bankruptcy. And it likewise provides for interest
at a contractual default rate—2% above “the rate otherwise applicable to [the]
Loan”—if Resources delayed paying the accelerated amount.
Under these two agreements, the creditors argued the debtors owed
them an additional $387 million—$201 million as the Make-Whole Amount
and $186 million 1 in post-petition interest. Both sides chose to kick the can
down the road. Rather than force resolution of the impairment issue at the
plan-confirmation stage, the parties stipulated the bankruptcy court could
resolve the dispute by deeming the creditors unimpaired and confirming the
proposed plan. Meanwhile, the debtors would set aside $400 million to

1 This amount includes $106 million in interest on the outstanding principal
under the notes, $14 million in interest on the Make-Whole Amount, and $66 million
in interest on the outstanding principal under the Revolving Credit Facility, all
accruing after the debtors filed their petitions.
4
 Case: 17-20793 Document: 00514799021 Page: 5 Date Filed: 01/17/2019

No. 17-20793
compensate the Class 4 Creditors if necessary “to render [the creditors]
Unimpaired.” The bankruptcy court agreed and confirmed the plan.
After confirmation, the parties (and the bankruptcy court) turned back
to the question of impairment. The debtors acknowledged the plan did not pay
the Make-Whole Amount or provide post-petition interest at the contractual
default rates. But they insisted the Class 4 Creditors were not “impaired”
because federal (and state) law barred them from recovering the Make-Whole
Amount and entitled them to receive post-petition interest only at the federal
judgment rate.
The Bankruptcy Code provides that a class of claims is not impaired if
“the [reorganization] plan . . . leaves unaltered the legal, equitable, and
contractual rights to which such claim . . . entitles the holder.” 11 U.S.C.
§ 1124(1). Elsewhere the Code states that a court should disallow a claim “to
the extent that [it seeks] unmatured interest.” Id. § 502(b)(2). The debtors
argued the Make-Whole Amount qualified as unmatured interest. But even if
it didn’t, they said, it was an unenforceable liquidated damages provision
under New York law. In either case, something other than the reorganization
plan itself—the Bankruptcy Code or New York contract law—prevented the
Class 4 Creditors from recovering the disputed amounts.
The debtors’ argument as to post-petition interest was much the same:
The Bankruptcy Code entitles creditors, at most, to post-petition interest at
the “legal rate,” not the rates set by contract. 11 U.S.C. § 726(a)(5). And the
legal rate, they said, is the federal judgment rate under 28 U.S.C. § 1961. Once
again, the Code—not the plan—limited the Class 4 Creditors’ claims.
The bankruptcy court rejected the premise that it must bake in the
Code’s provisions before asking whether a claim is impaired. Instead it
concluded unimpairment “requires that [creditors] receive all that they are
entitled to under state law.” In re Ultra Petroleum Corp., 575 B.R. 361, 372
5
 Case: 17-20793 Document: 00514799021 Page: 6 Date Filed: 01/17/2019

No. 17-20793
(Bankr. S.D. Tex. 2017). In other words, if a plan does not provide the creditor
with all it would receive under state law, the creditor is impaired even if the
Code disallows something state law would otherwise provide outside of
bankruptcy. So, the bankruptcy court asked only whether New York law
permits the Class 4 Creditors to recover the Make-Whole Amount (concluding
it does), and whether the Code limits the contractual post-petition interest
rates (concluding it does not). Id. at 368–75. It never decided whether the
Code disallows the Make-Whole Amount as “unmatured interest” under
§ 502(b)(2) or what § 726(a)(5)’s “legal rate” of interest means. It ordered the
debtors to pay the Make-Whole Amount and post-petition interest at the
contractual rates to make the Class 4 Creditors truly unimpaired.
The debtors sought a direct appeal to this Court (rather than the district
court) because the case raises important and unsettled questions of law. See
28 U.S.C. § 158(d)(2)(A). The bankruptcy court agreed, and so did we. In re
Ultra Petroleum Corp., No. 16-32202, 2017 WL 4863015, at *1 (Bankr. S.D.
Tex. Oct. 26, 2017). On appeal, we review those legal questions anew. In re
Positive Health Mgmt., 769 F.3d 899, 903 (5th Cir. 2014).
II.
We consider first whether a creditor is “impaired” by a reorganization
plan simply because it incorporates the Code’s disallowance provisions. We
think not.
A.
Chapter 11 lays out a framework for proposing and confirming a
reorganization plan. Confirmation of the plan “discharges the debtor from any
debt that arose before the date of such confirmation.” 11 U.S.C. § 1141(d)(1).
Because discharge affects a creditor’s rights, the Code generally requires a
debtor to vie for the creditor’s vote first. Id. § 1129(a)(8). And when it does,
the creditor may vote to accept or reject the plan. Id. § 1126(a). But the
6
 Case: 17-20793 Document: 00514799021 Page: 7 Date Filed: 01/17/2019

No. 17-20793
creditor’s right to vote disappears when the plan doesn’t actually affect his
rights. If the creditor is “not impaired under [the] plan,” he is “conclusively
presumed to have accepted” it. Id. § 1126(f ). The question, then, is whether
the Class 4 Creditors were “impaired” by the plan.
Let’s start with the statutory text. Section 1124(1) says “a class of claims
or interests” is not impaired if “the plan . . . leaves unaltered the [claimant’s]
legal, equitable, and contractual rights.” The Class 4 Creditors spill ample ink
arguing their rights have been altered. But that’s both undisputed and
insufficient. The plain text of § 1124(1) requires that “the plan” do the altering.
We therefore hold a creditor is impaired under § 1124(1) only if “the plan” itself
alters a claimant’s “legal, equitable, [or] contractual rights.”
The only court of appeals to address the question took the same
approach. In In re PPI Enterprises (U.S.), Inc., a landlord (creditor) argued the
reorganization plan of his former tenant (debtor) impaired his claim because it
did not pay him the full $4.7 million of rent he was owed over the life of the
lease. 324 F.3d 197, 201–02 (3d Cir. 2003). The Third Circuit disagreed.
Because the Bankruptcy Code caps lease-termination damages under
§ 502(b)(6), the plan merely reflected the Code’s disallowance. Id. at 204. At
the end of the day, “a creditor’s claim outside of bankruptcy is not the relevant
barometer for impairment; we must examine whether the plan itself is a source
of limitation on a creditor’s legal, equitable, or contractual rights.” Ibid. It
simply did not matter the landlord “might have received considerably more if
he had recovered on his leasehold claims before [the debtor] filed for
bankruptcy.” Id. at 205. The debtor’s plan gave the landlord everything the
law entitled him to once bankruptcy began, so he was unimpaired.
Decisions from bankruptcy courts across the country all run in the same
direction. See, e.g., In re Tree of Life Church, 522 B.R. 849, 861–62 (Bankr.
D.S.C. 2015); In re RAMZ Real Estate Co., 510 B.R. 712, 717 (Bankr. S.D.N.Y.
7
 Case: 17-20793 Document: 00514799021 Page: 8 Date Filed: 01/17/2019

No. 17-20793
2014); In re K Lunde, LLC, 513 B.R. 587, 595–96 (Bankr. D. Colo. 2014); In re
Mirant Corp., No. 03-46590, 2005 WL 6440372, at *3 (Bankr. N.D. Tex. May
24, 2005); In re Coram Healthcare Corp., 315 B.R. 321, 351 (Bankr. D. Del.
2004); In re Monclova Care Ctr., Inc., 254 B.R. 167, 177 (Bankr. N.D. Ohio
2000), rev’d on other grounds, 266 B.R. 792 (N.D. Ohio 2001); In re Am. Solar
King Corp., 90 B.R. 808, 819–22 (Bankr. W.D. Tex. 1988). All agree that
“[i]mpairment results from what the plan does, not what the [bankruptcy]
statute does.” Solar King, 90 B.R. at 819.
The creditors cannot point to a single decision that suggests otherwise.
That’s presumably why Collier’s treatise states the point in unequivocal terms:
“Alteration of Rights by the Code Is Not Impairment under Section 1124(1).”
7 COLLIER ON BANKRUPTCY ¶ 1124.03[6] (16th ed. 2018). “We are always chary
to create a circuit split.” United States v. Graves, 908 F.3d 137, 142 (5th Cir.
2018) (quotation omitted). That’s especially true “in the context of bankruptcy,
where uniformity is sufficiently important that our Constitution authorizes
Congress to establish ‘uniform laws on the subject of bankruptcies throughout
the United States.’” In re Marciano, 708 F.3d 1123, 1135 (9th Cir. 2013) (Ikuta,
J., dissenting) (quoting U.S. CONST. art. I, § 8, cl. 4). We refuse to create one
today.
B.
The Class 4 Creditors’ counterarguments do not move the needle. First,
they focus on § 1124(1)’s use of the word “claim.” They note the Code elsewhere
speaks of “allowed claims.” See, e.g., 11 U.S.C. §§ 506(a)(1), 506(a)(2), 510(c)(1),
1126(c). Then they suggest the absence of “allowed” in § 1124(1) means “claim”
there refers to the claim before the Code’s disallowance provisions come in and
trim its edges.
But the broader statutory context cuts the other way. Section 1124 is
not just (or even primarily) about the allowance of claims. It is about rights—
8
 Case: 17-20793 Document: 00514799021 Page: 9 Date Filed: 01/17/2019

No. 17-20793
the “legal, equitable, and contractual rights to which [the] claim . . . entitles
the holder.” Id. § 1124(1). That means we judge impairment after considering
everything that defines the scope of the right or entitlement—such as a
contract’s language or state law. See In re Energy Future Holdings Corp., 540
B.R. 109, 121 (Bankr. D. Del. 2015); 11 U.S.C. § 502(b)(1). Even the
bankruptcy court recognized this to some extent because it asked whether New
York law permitted the Noteholders to recover the Make-Whole Amount. See
Ultra Petroleum, 575 B.R. at 368–72. “The Bankruptcy Code itself is a statute
which, like other statutes, helps to define the legal rights of persons.” Solar
King, 90 B.R. at 819–20.
Finding no help in § 1124(1)’s statutory text, the Class 4 Creditors turn
to the legislative history of a different provision. In 1994, Congress repealed
§ 1124(3), which provided that a creditor’s claim was not impaired if the plan
paid “the allowed amount of such claim.” 11 U.S.C. § 1124(3) (1988) (emphasis
added). This proves, they say, that disallowance should now play no role in the
impairment analysis.
Even for those who think legislative history can be relevant to statutory
interpretation, this particular history is not. It does not say that every
disallowance causes impairment. Rather, Congress repealed § 1124(3) in
response to a specific bankruptcy court decision. See In re New Valley Corp.,
168 B.R. 73 (Bankr. D.N.J. 1994). That decision held unsecured creditors who
received their allowed claims from a solvent debtor, but who did not receive
post-petition interest, were unimpaired. Id. at 77–80. In debating the
proposed repeal of § 1124(3), the House Judiciary Committee singled out New
Valley by name as the justification for the repeal. See H.R. Rep. No. 103-835,
at 47–48 (1994) (citing New Valley and explaining the intent to repeal § 1124(3)
“to preclude th[e] unfair result” of “den[ying] the right to receive post petition
interest”). It is noteworthy the committee report does not cite other
9
 Case: 17-20793 Document: 00514799021 Page: 10 Date Filed: 01/17/2019

No. 17-20793
bankruptcy cases—such as Solar King—that addressed Code impairment
under § 1124(1). That is why the Third Circuit rejected appellees’ legislative-
history argument in PPI and held the repeal of § 1124(3) “does not reflect a
sweeping intent by Congress to give impaired status to creditors more freely
outside the postpetition interest context.” 324 F.3d at 207 (noting the
committee report cited New Valley but not Solar King).
Next, the Class 4 Creditors attempt to distinguish PPI. True, that case
involved disallowance under § 502(b)(6), not § 502(b)(2). But that’s a
distinction without a difference. See In re W.R. Grace & Co., 475 B.R. 34, 161–
62 (Bankr. D. Del. 2012); Energy Future, 540 B.R. at 122. Section 502 states
that “the court . . . shall allow [a] claim in [the requested] amount, except to the
extent that” any one of nine conditions apply. If any of the enumerated
conditions applies, the court shall not allow the relevant portion of the claim.
PPI reasoned that where one of those conditions applies, the Code—not the
plan—impairs the creditors’ claims. See 324 F.3d at 204. That reasoning
applies with equal force to § 502(b)(2).
The Class 4 Creditors (like the bankruptcy court) also point to the
mechanics of Chapter 11 discharge to suggest the plan itself, not the Code, is
doing the impairing. They note the Code’s disallowance provisions are carried
into effect only if the plan is confirmed, and “confirmation of the
plan . . . discharges the debtor from any debt that arose before” confirmation.
11 U.S.C. § 1141(d). In one sense, plan confirmation limits creditors’ claims
for money by discharging underlying debts. But in another sense, the Code
limits the creditors’ claims for money and imposes substantive and procedural
requirements for plan confirmation. The Class 4 Creditors’ argument thus
begs the critical question: What is doing the work here? We agree with PPI,
every reported decision identified by either party, and Collier’s treatise. Where

10
 Case: 17-20793 Document: 00514799021 Page: 11 Date Filed: 01/17/2019

No. 17-20793
a plan refuses to pay funds disallowed by the Code, the Code—not the plan—
is doing the impairing.
III.
That leaves the question whether the Code disallows the creditors’
claims for the Make-Whole Amount and post-petition interest at the
contractual default rates specified in the Note Agreement and the Revolving
Credit Facility. The bankruptcy court never reached either question. The
parties nevertheless urge us to reach them now. The creditors say their
contracts entitle them to both amounts, and that their contracts should be
honored under bankruptcy law’s longstanding “solvent-debtor” exception. The
debtors argue no such exception exists in modern bankruptcy law. And the
debtors further argue both claims are governed by the Bankruptcy Code, not
the pre-Code law or the parties’ contracts.
A word of clarification at the outset regarding terminology: For almost
three hundred years, bankruptcy law has recognized different kinds of “post-
petition interest.” As relevant here, the first is part of an underlying debt
obligation—like the rate specified in the Note Agreement (i.e., interest as part
of a claim). Although such interest has a life before bankruptcy, it may
continue to exist and accrue from when the debtor files a bankruptcy petition
until the day he finally pays the underlying debt. The second is interest a
creditor is entitled to recover as a consequence of receiving a bankruptcy award
(i.e., interest on a claim). That interest never existed before bankruptcy;
rather, it arises only after bankruptcy has transmogrified a debt obligation into
a bankruptcy award. Both types of interest are “post-petition” in that they
accrue after the petition is filed. But the parties use the phrase “post-petition
interest” to refer exclusively to the latter type of interest. Unless otherwise
indicated below, so do we.

11
 Case: 17-20793 Document: 00514799021 Page: 12 Date Filed: 01/17/2019

No. 17-20793
With that understanding, we first consider the historical, pre-Code
provenance of the solvent-debtor exception. Second, we consider the proper
interpretation of the Code. Finally, we vacate and remand both questions to
the bankruptcy court.
A.
In eighteenth-century England, only a creditor could kick-start
bankruptcy proceedings by submitting a petition and an affidavit to the Lord
Chancellor. (There was nothing like our voluntary debtor petition under
Chapter 11. See 11 U.S.C. § 301; Bankruptcy Act of 1841, ch. 9, § 1, 5 Stat.
440, 441 (1841) (repealed 1843).) The Lord Chancellor, in turn, granted a
commission to “wyse and honest discrete p[er]sons,” who were tasked with
administering the bankrupt’s estate. An Acte Touchyng Orders for
Bankruptes 1571, 13 Eliz. c. 7, § 2; see generally The Case of Bankrupts (1589),
76 Eng. Rep. 441; 2 Co. Rep. 25a (K.B.). 2 Although English bankruptcy law
mollified (somewhat) the severity of the Romans, 3 it authorized the
commissioners “to breake open the [bankrupt’s] House” to seize him and all of

2 Because the Lord Chancellor appointed commissioners promptly upon determining
the debtor qualified as a bankrupt, the commission marked the beginning of bankruptcy
proceedings. See Stephen J. Lubben, A New Understanding of the Bankruptcy Clause, 64
CASE WESTERN RES. L. REV. 319, 331–32 (2013); Louis Edward Levinthal, Note, The Early
History of English Bankruptcy, 67 U. PENN. L. REV. 1, 17 (1919). For that reason, the
commission date is functionally equivalent to the petition date under our present bankruptcy
laws.
3 As England’s foremost jurist once said, we “like not Lawes written in bloode.”

Edward Coke, Speech in the House of Commons (May 24, 1621), in 5 COMMONS DEBATES,
1621, at 176 (Wallace Notestein et al. eds., 1935). Compare LEGES DUODECIM TABULARUM
tbl. III, law X in 1 S.P. SCOTT, THE CIVIL LAW 64 (2001) (“Where a party is delivered up to
several persons, on account of a debt, after he has been exposed in the Forum on three market
days, they shall be permitted to divide their debtor into different parts, if they desire to do
so.”), with An Acte for the Discripcion of a Banckrupt and Reliefe of Credytors 1623, 21 Jac.
c. 19, § 6 (A bankrupt may be “sett upon the Pillory in some publique Place, for the space of
Two Houres, and have one of his or her Eares nayled to the Pillory and cutt off.”); but see An
Act to Prevent Frauds Frequently Committed by Bankrupts 1705, 4 & 5 Ann. c. 4, § 1
(authorizing punishment of death without the benefit of clergy for certain bankrupts).
12
 Case: 17-20793 Document: 00514799021 Page: 13 Date Filed: 01/17/2019

No. 17-20793
his goods. An Acte for the Discripcion of a Banckrupt and Reliefe of Credytors
1623, 21 Jac. c. 19, § 7; see 2 WILLIAM BLACKSTONE, COMMENTARIES *479–80.
Several debtor-friendly rules softened things. Of critical importance,
English law barred creditors from recovering any interest that accrued after
the Lord Chancellor issued his commission. Sexton v. Dreyfus, 219 U.S. 339,
344 (1911). Although the bankrupt was liable for interest up to the commission
date, if bankruptcy proceedings dragged on, he was not liable for interest
accruing as a result of the delay those proceedings caused before the
commissioners actually paid his creditors. See Ex Parte Bennet (1743), 26 Eng.
Rep. 716, 717; 2 Atk. 527, 528 (Ch.); 1 WILLIAM COOKE, THE BANKRUPT LAWS
196–97 (6th ed. 1812) (citing Ex Parte Wardell (1787)). And after paying his
creditors in full, the bankrupt could recover any surplus left in his estate. See
An Acte for the Better Reliefe of the Creditors Againste Suche as Shall Become
Bankrupts 1603, 1 Jac. c. 15, § 10; 13 Eliz. c. 7, § 4.
But there were exceptions to these rules. For example, where a secured
creditor held collateral that produced interest during bankruptcy proceedings,
he could recover that interest after the commission date. See Ex Parte
Ramsbottom (1835), in 2 BASIL MONTAGU & SCROPE AYRTON, REPORTS OF
CASES IN BANKRUPTCY 79, 83–84 (1836); cf. Sexton, 219 U.S. at 346. The
oversecured-creditor rule was another example. Where a secured creditor held
collateral that exceeded the value of the underlying debt, he could recover post-
petition interest up to the value of his security. That is, a creditor with
collateral valued at $500,000 to secure an underlying debt for $400,000 would
be able to recover interest up to $100,000. See Vanston Bondholders Protective
Comm. v. Green, 329 U.S. 156, 164 (1946); but see United States v. Ron Pair
Enters., Inc., 489 U.S. 235, 246 (1989) (observing this oversecured-creditor
exception was “of more doubtful provenance”).

13
 Case: 17-20793 Document: 00514799021 Page: 14 Date Filed: 01/17/2019

No. 17-20793
Most importantly for our purposes, however, English bankruptcy law
carved out an exception for solvent debtors. “In case of a surplus coming to a
Bankrupt, Creditors have a right to interest wherever there is a contract for it
appearing, either on the face of the security or by evidence.” 1 COOKE, supra,
at 198; 2 WILLIAM BLACKSTONE, COMMENTARIES *488. So, in 1743, the Lord
Chancellor awarded “subsequent interest” to Stephen Evance’s creditors
because his estate was “able to pay it.” Bromley v. Goodere (1743), 26 Eng.
Rep. 49, 50–52; 1 Atk. 75, 77–80 (Ch.). Where the bankrupt’s estate was
solvent, the Lord Chancellor reasoned, awarding post-commission interest to
some creditors would not prevent other creditors from receiving their “rateable
portion.” Ibid.; see also Ex Parte Rooke (1753), 26 Eng. Rep. 156, 157; 1 Atk.
244, 245 (Ch.).
But the fact the bankrupt’s estate contained sufficient funds to pay
creditors post-commission interest did not create a free-standing right to
recover interest accruing throughout bankruptcy and up to payment. Ex Parte
Marlar (1746), 26 Eng. Rep. 97, 98; 1 Atk. 150, 151 (Ch.). The solvent-debtor
exception simply allowed any interest to continue accruing (at the contractual
rate) if the creditor’s contract already provided for interest on the underlying
debt. See Ex Parte Mills (1793), 30 Eng. Rep. 640, 644; 2 Ves. jun. 295, 303
(Ch.); accord Nicholas v. United States, 384 U.S. 678, 682 n.9 (1966). Thus,
English law conceived of post-commission interest as part and parcel of the
underlying debt obligation, not something external to the obligation that the
creditor received as a consequence of recovering from the bankrupt’s estate. In
other words, the solvent-debtor exception permitted interest that was part of a
creditor’s claim, not interest on a claim.
American bankruptcy law is codified against this background. The
Constitution authorizes Congress “[t]o establish . . . uniform Laws on the
subject of Bankruptcies throughout the United States.” U.S. CONST. art. I, § 8,
14
 Case: 17-20793 Document: 00514799021 Page: 15 Date Filed: 01/17/2019

No. 17-20793
cl. 4. When Congress first exercised that power to adopt permanent federal
bankruptcy legislation in 1898, it borrowed extensively from this English
history. See Bankruptcy Act of 1898, ch. 541, 30 Stat. 544, repealed by
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549; cf. THOMAS
COOPER, THE BANKRUPT LAW OF AMERICA, COMPARED WITH THE BANKRUPT
LAW OF ENGLAND (1801) (noting earlier American law, on which the 1898 Act
was based, closely tracked English bankruptcy law). Ever since, “we [have]
naturally assume[d] that the fundamental principles upon which [England’s
bankruptcy system] was administered were adopted by us when we copied
th[at] system.” Sexton, 219 U.S. at 344. That includes the fundamental
principle barring creditors from recovering interest accruing after the petition
(or commission) date—and the exceptions to that principle. See Am. Iron &
Steel Mfg. Co. v. Seaboard Air Line Ry., 233 U.S. 261, 266–67 (1914).
B.
In 1978, Congress enacted an entirely new Bankruptcy Code. See
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified as
amended at 11 U.S.C. §§ 101–1532). The Code adopted many of these early
bankruptcy principles, but with some important modifications.
For starters, Congress codified the general rule barring post-petition
interest that is part of a creditor’s claim in 11 U.S.C. § 502(b)(2). That
provision disallows a claim “to the extent that [it seeks] unmatured interest.”
Numerous courts have recognized this connection between § 502(b)(2) and the
pre-Code rule. See, e.g., Leeper v. Pa. Higher Educ. Assistance Agency, 49 F.3d
98, 100–01 (3d Cir. 1995); In re Fesco Plastics Corp., 996 F.2d 152, 155–56 (7th
Cir. 1993); In re Monahan, 497 B.R. 642, 647 (B.A.P. 1st Cir. 2013).
Congress also codified the exception for oversecured creditors. See
United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S.
365, 373 (1988). Section 506(b) allows a creditor to recover interest if the value
15
 Case: 17-20793 Document: 00514799021 Page: 16 Date Filed: 01/17/2019

No. 17-20793
of his security “is greater than the amount of [his allowed secured] claim.” And
we have held that § 506(b) incorporates the “pre-Code case law” providing that
the creditor is entitled to such interest at “the contract rate.” In re Laymon,
958 F.2d 72, 75 (5th Cir. 1992).
At first blush, it appears Congress also codified the solvent-debtor
exception—or something very much like it—in § 726(a)(5). See In re Colortex
Indus., Inc., 19 F.3d 1371, 1376 & n.4 (11th Cir. 1994). Section 726(a) lists a
descending waterfall of priorities for distributing property in a Chapter 7
bankruptcy:
(a) Except as provided in section 510 of this title, property of the
estate shall be distributed—
(1) first, in payment of claims of the kind specified in . . . section
507 . . . ;
(2) second, in payment of any allowed unsecured claim, other
than a claim of a kind specified in paragraph (1), (3), or (4)
of this subsection . . . ;
(3) third, in payment of any allowed unsecured claim proof of
which is tardily filed under section 501(a) of this title . . . ;
(4) fourth, in payment of any allowed claim, whether secured or
unsecured, for any fine, penalty, or forfeiture, or for multiple,
exemplary, or punitive damages, arising before the earlier of
the order for relief or the appointment of a trustee . . . ;
(5) fifth, in payment of interest at the legal rate from the date of
the filing of the petition, on any claim paid under paragraph
(1), (2), (3), or (4) of this subsection; and
(6) sixth, to the debtor.
11 U.S.C. § 726 (emphasis added). If the debtor’s estate is sufficient to pay
items 1 through 4, then creditors should also get post-petition interest (item 5)
before the debtor can recover any surplus (item 6).

16
 Case: 17-20793 Document: 00514799021 Page: 17 Date Filed: 01/17/2019

No. 17-20793
This principle applies in Chapter 11 cases too. Chapter 7 and Chapter
11 bankruptcies generally run along different tracks. 4 But § 1129(a)(7),
commonly referred to as the “Best Interests of Creditors” test, incorporates
§ 726(a)’s waterfall provision. See 7 COLLIER, supra, ¶ 1129.02[7][c][iii]. It
requires a Chapter 11 plan to provide that impaired creditors “will
receive . . . not less than the amount that [they] would . . . receive if the debtor
were liquidated under chapter 7,” 11 U.S.C. § 1129(a)(7)(A)(ii), including post-
petition interest at “the legal rate,” id. § 726(a)(5).
But § 726(a)’s solvent-debtor exception differs from the pre-Code version
in several respects. First, although the pre-Code version applied to all
creditors with a contractual entitlement to interest, the Code’s version applies
to all creditors in Chapter 7 cases, but only impaired creditors in Chapter 11
cases. Section 1129(a)(7) states it applies only “with respect to [an] impaired
class of claims.” Its plain text does not apply to unimpaired claims. See Cont’l
Sec. Corp. v. Shenandoah Nursing Home P’ship, 193 B.R. 769, 776 (W.D. Va.
1996); In re Seatco, Inc., 257 B.R. 469, 480 (Bankr. N.D. Tex. 2001); 7 COLLIER,
supra, ¶ 1129.02[7][a] (“[I]f a class is unimpaired under section 1124, its
members do not get the protections of the best interest test; instead they are
left to their unaltered legal or equitable rights.”).
Second, the Code changed the source of recoverable post-petition
interest. The pre-Code solvent-debtor exception allowed creditors to recover
interest as part of a claim. The Code, by contrast, requires solvent debtors to
pay post-petition interest on a claim.

4 Proceedings under Chapter 7 end in a fire sale, and the debtor is left a pile of ash.
See 11 U.S.C. §§ 704(a)(1), 721. Proceedings under Chapter 11, however, are designed to
reorganize—rather than liquidate—the debtor, which emerges capable of doing business. See
id. §§ 1107–08, 1141.
17
 Case: 17-20793 Document: 00514799021 Page: 18 Date Filed: 01/17/2019

No. 17-20793
The Code itself highlights the difference. And we infer a distinction in
meaning from Congress’s distinction in language. See, e.g., ANTONIN SCALIA &
BRYAN A. GARNER, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 170
(2012). For example, § 726(a)(2) refers to payment of a “claim.” So too does
§ 502(b)(2), which refers to a “claim . . . for unmatured interest.” These
provisions prove Congress knew how to write about interest as part of a claim
when it wanted to. By contrast, § 726(a)(5) provides for “payment of [post-
petition] interest . . . on [the] claim.” In doing so, Congress necessarily
determined the type of post-petition interest contemplated in § 726(a)(5) is not
part of the claim itself. 5
Third, the Code may have changed the applicable interest rate. The pre-
Code exception allowed interest at the contract rate because it permitted
interest fixed by contract to continue accruing according to the contract’s
terms. Ex Parte Marlar, 27 Eng. Rep. at 98. The Code, however, requires
“interest at the legal rate.” 11 U.S.C. § 726(a)(5). Some courts interpret “the
legal rate” to mean a rate set by statute. See, e.g., In re Cardelucci, 285 F.3d
1231, 1234 (9th Cir. 2002) (citing 28 U.S.C. § 1961). Others interpret “the legal
rate” to mean one set by contract. See, e.g., In re Schoenberg, 156 B.R. 963, 972
(Bankr. W.D. Tex. 1993). If the former are correct, the Code changed the pre-
Code rate.

5 Courts routinely talk about § 726(a)(5) as a present-day solvent-debtor “exception”
to the general rule—now codified in § 502(b)(2)—barring post-petition interest. See, e.g.,
Fesco Plastics, 996 F.2d at 155–56; accord In re Shoen, 176 F.3d 1150, 1153 n.2 (9th Cir.
1999) (McKeown, J., dissenting). For convenience, we have used that terminology here in
discussing whether, and if so how, the pre-Code exception survives in the post-Code world.
But as the preceding discussion makes clear, that framing misses a key nuance. Section
726(a)(5) is not really an exception to § 502(b)(2) at all because the provisions are talking
about two different kinds of interest: Section 502(b)(2) (the general rule) bars interest as
part of a claim, while § 726(a)(5) (the so-called exception) allows interest on a claim. See
Energy Future, 540 B.R. at 113.
18
 Case: 17-20793 Document: 00514799021 Page: 19 Date Filed: 01/17/2019

No. 17-20793
One final note: Pre-Code, our Court pioneered the incorporation of
England’s solvent-debtor exception into American bankruptcy law. But we did
so, at least in part, based on concerns that a solvent debtor could file a
voluntary petition in bad faith to avoid paying interest and that a creditor
would be powerless to stop the then-ex-parte bankruptcy proceedings. See
Johnson v. Norris, 190 F. 459, 463 (5th Cir. 1911). While the pre-Code law left
creditors “powerless to resist” a bad-faith petition filed by a solvent debtor,
ibid., today the Code allows creditors to seek dismissal based on a debtor’s bad
faith, see 11 U.S.C. § 1112(b)(1); In re Krueger, 812 F.3d 365, 373 (5th Cir.
2016).
C.
The next question is what this historical and statutory backdrop means
for the creditors’ claims to the Make-Whole Amount and post-petition interest.
As we explain below, the creditors can recover the Make-Whole Amount if (but
only if ) the solvent-debtor exception survives Congress’s enactment of
§ 502(b)(2). We doubt it did. But we vacate and remand to allow the
bankruptcy court to answer the question in the first instance.
The creditors’ entitlement vel non to post-petition interest is even
murkier. The parties agree the creditors are entitled to some post-petition
interest, but they disagree about the rate—namely, whether it is the federal
judgment rate or something higher. To the extent the creditors seek post-
petition interest as part of their claims, they run into the same issues that
affect the Make-Whole Amount. To the extent they seek post-petition interest
on their claims, the pre-Code solvent-debtor exception does not countenance it.
And the Code itself says nothing about post-petition interest on unimpaired
claims for Chapter 11 cases. It is not clear then what should fill that vacuum,
and the bankruptcy court said nothing about it. We therefore vacate the award

19
 Case: 17-20793 Document: 00514799021 Page: 20 Date Filed: 01/17/2019

No. 17-20793
of post-petition interest and remand that question to the bankruptcy court as
well.
1.
We start with whether the Make-Whole Amount is disallowed by
§ 502(b)(2). That Code provision requires a bankruptcy court to disallow a
claim “to the extent that [it seeks] unmatured interest.” 11 U.S.C. § 502(b)(2).
Our precedent in turn defines § 502(b)(2)’s “unmatured interest” by looking to
economic realities, not trivial formalities. In re Pengo Indus., Inc., 962 F.2d
543, 546 (5th Cir. 1992) (“economic reality,” “economic fact,” “economic
equivalent”). Section 502(b)(2) thus disallows any claim that is the economic
equivalent of unmatured interest. Ibid.
The debtors make a compelling argument the Make-Whole Amount is
one such disallowed claim. We are persuaded by three aspects of the debtors’
argument.
First, the Make-Whole Amount is the economic equivalent of “interest.”
The purpose of a make-whole provision “is to compensate the lender for lost
interest.” 4 COLLIER, supra, ¶ 502.03[3][a]; see In re MPM Silicones, L.L.C.,
874 F.3d 787, 801–02 & n.13 (2d Cir. 2017) (The “make-whole premium was
intended to ensure that [noteholders] received additional compensation to
make up for the interest they would not receive if the Notes were redeemed
prior to their maturity date.”); In re Energy Future Holdings Corp., 842 F.3d
247, 251 (3d Cir. 2016) (similar); In re Ridgewood Apartments of DeKalb Cty.,
Ltd., 174 B.R. 712, 720 (Bankr. S.D. Ohio 1994) (similar). So too here. The
Make-Whole Amount is calculated by subtracting the accelerated principal
from the discounted value of the future principal and interest payments. That
captures the value of the interest the Noteholders would have eventually

20
 Case: 17-20793 Document: 00514799021 Page: 21 Date Filed: 01/17/2019

No. 17-20793
received if the Notes had not been prepaid. See In re Doctors Hosp. of Hyde
Park, Inc., 508 B.R. 697, 705 (Bankr. N.D. Ill. 2014). 6
Second, the interest for which the Make-Whole Amount compensates
was “unmatured” when the debtors filed their Chapter 11 petitions. Section
502(b)’s disallowance provisions apply “as of the date of the filing of the
petition.” On that day, the debtors did not owe the Make-Whole Amount or the
underlying interest. The Note Agreement’s acceleration clause doesn’t change
things because it operates as an ipso facto clause by keying acceleration to,
among other things, the debtor’s decision to file a bankruptcy petition. See In
re Lehman Bros. Holdings Inc., 422 B.R. 407, 414–15 (Bankr. S.D.N.Y. 2010);
Ipso Facto Clause, BLACK’S LAW DICTIONARY 957 (Del. 10th ed. 2014). And the
parties agree that an ipso facto clause is unenforceable. “[W]hether interest is
considered to be matured or unmatured for the purpose of [§ 502(b)(2)] is to be
determined without reference to any ipso facto bankruptcy clause in the
agreement creating the claim.” 4 COLLIER, supra, ¶ 502.03[3][b]; see H.R. Rep.
No. 95-595, at 352–53 (1977); In re ICH Corp., 230 B.R. 88, 94 (N.D. Tex. 1999).
The Class 4 Creditors’ only response is the acceleration clause is not an ipso
facto clause because it could also be triggered by something other than a
bankruptcy petition. They cite nothing for that proposition.
Third, those decisions taking a different view are unpersuasive. Some
courts have concluded § 502(b)(2) does not cover make-whole provisions on the
assumption “they fully mature pursuant to the provisions of the contract.” In

6 The Class 4 Creditors’ principal objection is the Make-Whole Amount is not actually
interest. For example, they note it compensates the Noteholders not for the use of their
money, but for Resources’ forbearance from using that money. They add it is paid in a lump
sum rather than earned over time. But as already discussed, our precedent interpreting
§ 502(b)(2) does not require the Make-Whole Amount to be unmatured interest; it requires
only that it walk, talk, and act like unmatured interest. See Pengo, 962 F.2d at 546. Neither
party suggests this precedent has been overruled.
21
 Case: 17-20793 Document: 00514799021 Page: 22 Date Filed: 01/17/2019

No. 17-20793
re Outdoor Sports Headquarters, Inc., 161 B.R. 414, 424 (Bankr. S.D. Ohio
1993); see In re Skyler Ridge, 80 B.R. 500, 508 (Bankr. C.D. Cal. 1987). But
ipso facto clauses count for nothing when deciding maturity under § 502(b)(2).
Others have concluded make-whole provisions are better viewed as liquidated
damages, rather than unmatured interest. In re Trico Marine Servs., Inc., 450
B.R. 474, 480–81 (Bankr. D. Del. 2011); In re Lappin Elec. Co., 245 B.R. 326,
330 (Bankr. E.D. Wis. 2000). But those categories are not mutually exclusive.
Doctors Hosp., 508 B.R. at 706.
The Class 4 Creditors’ most persuasive response is that none of these
arguments applies to a solvent debtor. First, they try the “absolute priority
rule,” insisting it bars a solvent debtor from paying stockholders any surplus
before fully compensating its creditors. That is only half right. For starters,
the absolute priority rule applies when asking whether a plan is “fair and
equitable” in a cram-down scenario. 11 U.S.C. § 1129(b)(1). It is not a
freewheeling exception requiring a debtor to pay amounts the Code otherwise
prohibits. But more importantly, the rule itself builds in the Code’s
disallowance provisions. It stands for the proposition that a plan “may not
allocate any property whatsoever to any junior class . . . unless all senior
classes consent, or unless such senior classes receive property equal in value
to the full amount of their allowed claims.” 7 COLLIER, supra, ¶ 1129.03[4][a][i]
(emphasis added). Thus, the Class 4 Creditors simply beg the question
whether § 502(b)(2) disallows the Make-Whole Amount; if it does, the absolute
priority rule takes that into account.
Their second argument fares better: If the pre-Code solvent-debtor
exception survives in the background of the Code, then the Class 4 Creditors
have a point. As explained above in Part III.A, English bankruptcy law gave
the creditors of a solvent debtor the “right to interest wherever there is a
contract for it.” 1 COOKE, supra, at 198; accord Bromley, 26 Eng. Rep. at 50–
22
 Case: 17-20793 Document: 00514799021 Page: 23 Date Filed: 01/17/2019

No. 17-20793
52. And it appears undisputed the Class 4 Creditors would have a contractual
right outside of bankruptcy to the interest specified in the Make-Whole
Amount. Therefore, the pre-Code solvent-debtor exception would operate as a
carve-out from § 502(b)(2)’s general bar on unmatured interest—in much the
same way the exception operated as a carve-out from the pre-Code rule barring
contract interest after the commission date.
The only question then is whether the pre-Code solvent-debtor exception
survives the enactment of § 502(b)(2). As discussed above in Part III.B,
Congress carefully incorporated some pre-Code principles but not others. And
those principles it did incorporate, Congress sometimes modified. It might be
true Congress chose not to codify the solvent-debtor rule as an absolute
exception to § 502(b)(2). See, e.g., Ron Pair Enters., 489 U.S. at 243–46;
Timbers of Inwood, 484 U.S. at 373. On the other hand, we sometimes presume
congressional silence leaves undisturbed certain long-established bankruptcy
principles. See, e.g., Midatlantic Nat’l Bank v. N.J. Dep’t of Envtl. Prot., 474
U.S. 494, 500–01 (1986); Kelly v. Robinson, 479 U.S. 36, 44–47 (1986). The
bankruptcy court’s resolution of the Code-impairment question prevented it
from considering these arguments. “[M]indful that we are a court of review,
not of first view,” we will not make the choice ourselves. Cutter v. Wilkinson,
544 U.S. 709, 718 n.7 (2005).
One last note on our remand of the Make-Whole Amount. Much of the
pre-Code law regarding solvent debtors—including our 1911 decision in
Johnson—appears motivated by concerns over bad-faith filings. That is, courts
worried that without the solvent-debtor exception, solvent debtors would seek
bankruptcy protection in bad faith simply to avoid paying their debts. And
many of the creditors’ arguments before our Court have the same flavor. But
Chapter 11 addresses this problem by creating a motion-to-dismiss procedure
for bad-faith filings. See 11 U.S.C. § 1112(b); In re Integrated Telecom Express,
23
 Case: 17-20793 Document: 00514799021 Page: 24 Date Filed: 01/17/2019

No. 17-20793
Inc., 384 F.3d 108, 112, 118–20 (3d Cir. 2004). And as far as the record reveals,
the Class 4 Creditors never availed themselves of that procedure or complained
it was insufficient. That is presumably because the debtors are both solvent
and good-faith filers. We trust the bankruptcy court on remand also will
consider what effect (if any) § 1112(b) has on the solvent-debtor exception (if
any exists).
2.
Finally, we turn to post-petition interest. Both parties agree the
creditors are entitled to some post-petition interest. That agreement is founded
on Congress’s past amendments to the Code. “Before 1994, [the Code] specified
that a creditor receiving full payment of an ‘allowed claim’ was not impaired.”
PPI, 324 F.3d at 205 (citing former 11 U.S.C. § 1124(3) (1988)). When “one
bankruptcy court held that § 1124(3) allowed a solvent debtor to pay the
‘allowed’ claims of unsecured creditors in full, excluding postpetition interest,
without risking impairment,” Congress responded by repealing § 1124(3). Id.
at 205–06 (citing New Valley, 168 B.R. at 77–80). Courts have interpreted the
relevant legislative history as establishing that a creditor denied post-petition
interest is “impaired, entitling [that creditor] to vote for or against the plan of
reorganization.” Id. at 206 (quoting H.R. Rep. No. 103-835, at 47–48).
Even if this entitles the Class 4 Creditors to at least some post-petition
interest, it does not establish how much. The parties point to only one Code
provision setting a rate for post-petition interest on awards, § 726(a)(5), but for
the reasons discussed above, it does not apply to the creditors here. Thus, we
look outside the Code to see if a more general rule controls.
Here, the pre-Code practice provides no help. As far as we can tell,
English bankruptcy law provided no right at all to interest on a bankruptcy
award. See Ex Parte Marlar, 26 Eng. Rep. at 98. It merely allowed contractual
interest that was accruing prior to the solvent debtor’s bankruptcy to continue
24
 Case: 17-20793 Document: 00514799021 Page: 25 Date Filed: 01/17/2019

No. 17-20793
accruing at the contractual rate. See Ex Parte Mills, 30 Eng. Rep. at 644. That
is why English creditors could recover post-petition interest as part of a claim
(perhaps like the Make-Whole Amount). But it also is why the solvent-debtor
exception does not answer whether the creditors can recover post-petition
interest on a claim—or how much. As far as we can tell, the modern concept
of post-petition interest on a claim had no analogy under pre-Code law.
In our view, that leaves two potential paths. The first is the general post-
judgment interest statute. See 28 U.S.C. § 1961. Section 1961(a) allows
interest “on any money judgment in a civil case recovered in a district court”
and sets a rate by reference to certain Treasury yields. Courts have applied
this provision to bankruptcy proceedings on the theory bankruptcy courts are
units of district courts. See In re Dow Corning Corp., 237 B.R. 380, 385–86
(Bankr. E.D. Mich. 1999) (collecting cases). Courts have also treated
bankruptcy claims as equivalent to judgments entered on the day the petition
was filed. See, e.g., Wasserman v. City of Cambridge, 151 B.R. 4, 6 n.2 (D.
Mass. 1993) (“Upon the filing of bankruptcy, claims of creditors are treated as
the functional equivalent of a federal judgment against the estate’s assets.”);
Dow Corning, 237 B.R. at 393 (“Several courts have stated that a creditor’s
claim is deemed to be a ‘judgment’ entered on the date of the petition.”); In re
Melenyzer, 143 B.R. 829, 833 (Bankr. W.D. Tex. 1992) (“From and after the
petition date, then, creditors hold the equivalent of a federal judgment against
estate assets, enforceable only in federal court . . . . Bankruptcy gives all
creditors what amounts to a judgment against the debtor as of the filing date.”).
This has led at least one court to conclude § 1961 requires post-petition interest
on the award at the judgment rate from the date the petition was filed. See
Dow Corning, 237 B.R. at 393 (“If these courts are correct, then both 28 U.S.C.
§ 1961(a) and § 726(a)(5) start the interest clock running from the same date.

25
 Case: 17-20793 Document: 00514799021 Page: 26 Date Filed: 01/17/2019

No. 17-20793
This viewpoint is sensible given that unsecured claims are valued as of the
petition date.”).
One benefit of applying § 1961 to the claims of unimpaired creditors in
Chapter 11 proceedings could be uniformity. If, as some courts hold,
§ 726(a)(5)’s reference to “the legal rate” incorporates the rate from § 1961,
then all bankruptcy creditors could receive post-petition interest at the same
rate. See Dow Corning, 237 B.R. at 393. On the other hand, a bankruptcy
award back-dated to the petition filing date may prove a poor analogy to
ordinary judgments. Or perhaps Congress’s failure to apply § 1961 to
unimpaired Chapter 11 creditors is meaningful. See SCALIA & GARNER, supra,
at 93 (explaining “[t]he principle that a matter not covered [by a statute] is not
covered”).
A second potential path is equity. Bankruptcy courts have long been
thought of as courts of equity, especially when it comes to awarding interest.
See Vanston Bondholders, 329 U.S. at 241; Consolidated Rock Prods. Co. v. Du
Bois, 312 U.S. 510, 527–28 (1941). That might not help where the Code’s
reticulated statutory scheme has displaced the bankruptcy courts’ equitable
authority. See, e.g., Law v. Siegel, 571 U.S. 415, 421 (2014) (“[W]hatever
equitable power remains in the bankruptcy courts must and can only be
exercised within the confines of the Bankruptcy Code.” (quotation omitted)).
But by all accounts, the Code says nothing about post-petition interest on
unimpaired Chapter 11 claims. So equity might say something.
After all, we know the Class 4 Creditors are by stipulation unimpaired,
and § 1124(1) says unimpaired creditors retain their “legal, equitable, and
contractual rights.” The creditors here have no legal right to post-petition
interest at the default rates. They do not point to a New York law requiring
them to receive post-petition interest. Nor do they have a contractual right to
such interest. The contractual rates at issue here governed interest paid on
26
 Case: 17-20793 Document: 00514799021 Page: 27 Date Filed: 01/17/2019

No. 17-20793
amounts owed under the contract, not interest on a bankruptcy award. The
contracts did not purport to fix an interest rate that would govern if the parties
proceeded to protracted litigation, obtained the equivalent of a “judgment” in
bankruptcy court, and then a court awarded interest. But they might have an
equitable right to post-petition interest. At least one well-reasoned bankruptcy
decision has so held: For creditors “to be unimpaired the plan must provide
that the Court may award post-petition interest at an appropriate rate if it
determines to do so under its equitable power.” Energy Future, 540 B.R. at
124. Because the bankruptcy court in this case erred in its Code-impairment
analysis, we do not have the benefit of its wisdom on these questions.
* * *
As we have explained, Code impairment is not the same thing as plan
impairment. Because the bankruptcy court found otherwise, it did not address
whether the Code disallows the Make-Whole Amount or post-petition interest,
and if not, how much the debtors must pay the Class 4 Creditors. To secure
plan confirmation, the parties stipulated the debtors would do whatever is
necessary to make the creditors unimpaired. The bankruptcy court, therefore,
must make that stipulation a reality. For that reason and others explained
above, we REVERSE in part, VACATE in part, and REMAND for further
proceedings consistent with this opinion.

27