Calculation of Secured Claims

When I was a law student the rule I learned about secured claims was that they accrue post-petition interest and attorneys' fees (if provided for by contract or statute) up to the amount of the value of the collateral that exceeds their claims, but then nothing further once they are fully secured.  That was an easy enough rule to apply.

But then the Supreme Court's ruled in Travelers v. PG&E (2007) that the standard basis for disallowing the excess attorneys' fees—the Fobian rule—was no longer valid. SCOTUS expressly left open the possibility of other arguments for limiting attorneys' fees, but none have been successful in the courts of appeals so far. 

So this brings up a question:  If post-petition interest is capped by the collateral cushion, but post-petition attorneys' fees are not so capped and can therefore spillover into an unsecured claim, what is the order in which the collateral cushion is applied?  That is, what is the correct order of operations?  Is the collateral cushion applied first to post-petition interest and then to attorneys' fees or vice-versa or are they applied as they accrue? 

I'm curious for readers' thoughts on the right answer to this problem, or at least how it is handled in practice.  I'm also curious for thoughts on why the issue hasn't arisen in any reported decision. The problem seems akin to that of how adequate protection payments are applied to reduce a claim and collateral value, where there is a little bit of caselaw.  

Comments

[manas.news]

Interesting article, thank you. Very glad I found your blog.