Who pays the debtor’s expenses that are incurred during the bankruptcy is a common debate. One potential option, especially in small to midsize corporate bankruptcies, is a secured creditor who can be surcharged in accordance with 11 USC § 506(c). Of that section’s three requirements, most litigation concerns the requirement that the expense “benefit” the secured creditor. A split has recently developed between courts, led by the Seventh Circuit in Trim-X, that require the bankruptcy trustee to exclusively intend to benefit the secured creditor and obtain secured-creditor consent and courts, such as the Fifth Circuit in Domistyle, that merely require that the secured creditor receive a benefit. This Comment suggests a new approach that permits surcharges when there is a connection between the expense incurred and the secured creditor’s collateral. This collateral-expenseconnection approach is the best reading of the text of § 506(c) and the pre-Code case law that the statute codifies.
"A Simplified “Benefit” Prong for SecuredCreditor Surcharges,"
University of Chicago Law Review: Vol. 85
, Article 1.
Available at: https://chicagounbound.uchicago.edu/uclrev/vol85/iss4/1