From the debtor’s perspective, a charge tacked on by a gluttonous lender who is already charging the debtor for default interest and any fees and costs, including attorneys’ fees, incurred by the lender in collecting the debt owed to it and in protecting its collateral. From the secured lender’s perspective, a legitimate charge, properly passed on to a debtor or borrower, designed to compensate the lender (1) for the lender’s lost use of the money to which it would have had access had the payment been timely made and/or (2) for the lender’s increased administrative cost that naturally accrues when one of its loans is paid late.
If there is sufficient collateral value to cover it and the bankruptcy court determines it to be “reasonable,” this charge may be added to the lender’s secured claim under Section 506(b).
Bankruptcy Code § 506(b). See also Oversecured Creditor, Secured Claim, Undersecured Creditor.