Jason DeJonker and James Sowka Published in The National Law Journal
“Lenders’ Right to Credit Bid Tested Before 7th Circuit”

Bankruptcy attorneys Jason DeJonker and James Sowka published an article in The National Law Journal’s “Corporate Restructuring & Bankruptcy” special section on the limited options in today’s marketplace to refinance or restructure defaulted or mature commercial mortgage loans resulting in cash-strapped real estate borrowers finding relief under the Bankruptcy Code.

Jason and Jim note that some borrowers have tried to eliminate the lender's right to credit bid. The authors explain that credit bidding is the ability of a secured lender to bid up to the full amount of its secured debt claim to acquire its collateral in exchange for cancellation of the related indebtedness in the amount of the bid. In their article, Jason and Jim point out that cases decided by the 3rd and 5th Circuits of the U.S. Court of Appeals have restricted the right to credit bid resulting in borrowers wanting to retain their commercial real estate investments.

The authors write, however, that the 7th Circuit will soon be addressing secured lenders’ credit bid rights next and its decision will have implications in many future proceedings, particularly if it follows the 3rd and 5th Circuit decisions, and secured lenders may possess fewer rights to protect their interest in bankruptcy.