You are here

In re Tri-State Ethanol Company LLC

Bankr. No.: 
03-10194
Chapter: 
7
Date of Decision: 
November 13, 2006
Issue: 
(1) Whether pursuant to 11 U.S.C. § 506(b) the Court may allow a prepayment charge incurred by the debtor prior to the filing of the debtor’s petition?(2) Whether a secured creditor may include a prepayment charge incurred by the debtor prior to the filing of the debtor’s petition as a component of its secured claim?
Ruling: 
(1) Section 506(b) applies only to interest, fees, costs, and other charges accruing post-petition. Thus, it has no bearing on the allowability of a prepayment charge incurred by the debtor prior to the filing of the debtor’s petition. (2) Pursuant to 11 U.S.C. § 502(b), a court may not allow a claim to the extent it “is unenforceable against the debtor and property of the debtor under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.” In this case, despite certain ambiguities in the loan documents, the parties clearly intended to provide for a prepayment charge and specifically agreed in the event of a default the total sum due and owing would include the prepayment charge. As nothing in the reported cases suggests the South Dakota Supreme Court would refuse to enforce such an agreement, the secured creditor may include the prepayment charge as a component of its secured claim.
Full Bankruptcy Court Decision: 
Appeal Summary: 
In In re Tri-State Ethanol Company LLC, 369 B.R. 481 (D.S.D. 2007), the district court reversed the bankruptcy court’s ruling allowing the secured creditor’s prepayment charge. The Court of Appeals agreed with the district court and reversed the bankruptcy court’s ruling allowing the prepayment charge. Tri-State Financial, LLC v. First Dakota National Bank, 538 F.3d 920 (8th Cir. 2008).
Full Bankruptcy Appellate Panel/District Court Appeal Opinion: 
Full Eighth Circuit Court of Appeals Opinion: