The Cost of Realization by a Secured Creditor in Bankruptcy

In October 1974, business failures increased by eighteen percent, reaching the highest level in any month since March 1971. The number of business failures for that month was the highest in eighty years.\u27 As creditors seek to realize on their security interests, and encounter the problem of who should bear the expense incurred, they may discover that the term secured does not adequately describe the ability to recover advances made to the bankrupt debtor. Despite the confusing state of the law in this area, the increasingly inordinate expense of foreclosure in bankruptcy, and the pressures of the current economy, the question of how much of the cost of liquidation should be borne by the secured creditors has gone virtually unnoticed by commentators and reformers of the bankruptcy laws. This Note will attempt to analyze the various theories recognized by the courts-benefit to the secured creditor, consent, existence of a surplus or general fund, and cost of analogous proceedings in state court--in the determination of whether the cost of the bankruptcy proceeding should be assessed against the secured creditor, and, if so, how much of the cost should be assessed. The policy considerations underlying these theories, an expression of which is largely forgotten or ignored by the cases, will receive particular focus. Finally, a proposal for legislative action in this area will be set forth