Tag Archives: 506(c)

Third Circuit Decision in In re Towne Reaffirms Rule That It Is Not Easy To Surcharge A Secured Lender’s Collateral Under 506(c)

As a general rule, the costs and expenses of administering a bankruptcy proceeding must be borne out of the unencumbered assets of the estate, absent an agreement to the contrary.  One narrow exception to this rule arises from Section 506(c) of the Bankruptcy Code, which enables a debtor in possession to surcharge a secured lender’s collateral to pay reasonable and necessary administrative expenses that are incurred preserving or disposing such collateral.  Recently, in In re Towne, Inc., et al. 2013 BL 232068 (3d Cir. Aug. 29, 2013), the Third Circuit Court of Appeals upheld lower court decisions denying a motion by a debtor’s counsel to surcharge the proceeds of a secured lender’s collateral to pay its legal fees, reinforcing prior Third Circuit decisions on the issue and demonstrating the difficulties a debtor faces in seeking to surcharge a secured lender’s collateral.   Continue reading

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