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This article tries to tell the story of YMPs in bankruptcy. It is not an easy story to tell. It has so many subplots: the court’s position on freedom of contract, the debtor’s solvency or insolvency, the effect of recognizing the YMP on other creditors, whether the YMP claim arose pre- or post-petition, the proper relationship between section 502 claim allowance and section 506(b) which permits oversecured claims to include reasonable fees, costs, or charges as provided for in the loan agreement, and the effect of YMP enforcement on chapter 11 plan configuration.

In terms of basic plot line though, the debtor will almost always want to get rid of the YMP – somehow, some way. The YMP holder will almost always want to enforce it. The debtor’s other creditors will join with the debtor to oppose YMP enforcement if enforcement will adversely affect their position. The YMP story then it really a story about how debtors can try to invalidate or neutralize YMPs and how YMP holders can try to make them enforceable.


Originally published by the DePaul Business & Commercial Law Journal in 2005.