Usury is the charging of interest for the use of money as a rate in excess of that permitted by statute. The Bankruptcy Act allows the trustee-in-bankruptcy to plead the defense of usury to a creditor's claim. A debtor-in-possession in a Chapter XI proceeding, who has all the rights and powers of the trustee, may also assert the defense of usury. There is, however, no federal usury statute and the Bankruptcy Act defines neither usury nor its effect. To resolve the usury issue the bankruptcy court has to look to the law of the jurisdiction in which the loan arose. The conflict among the state jurisdictions as to the effect given to an usurious loan obscures bankruptcy's traditional distinction between the allowance and the enforcement of a claim. Relying on an unconstrued and unenforced criminal usury statute to invoke local deterrence policy, the court deprived a good faith lender of the proper determination of his ratable share in the bankruptcy distribution.
BAANKRUPTCY-Usury-Plaintiff's Claim for Compound Interest Ruled Usurious; Simple Interest Disallowed to Give Effect to State's Deterrence Policy,
4 Fordham Urb. L.J. 633
Available at: http://ir.lawnet.fordham.edu/ulj/vol4/iss3/11