In re Matthews

• Decision Date: 30 September 2020
• Docket Number: Number 19-11098
• Parties: IN RE: Deontae M. MATTHEWS, Debtor
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia

623 B.R. 818

IN RE: Deontae M. MATTHEWS, Debtor

Number 19-11098

United States Bankruptcy Court, S.D. Georgia, Augusta Division, Augusta Division.

Signed September 30, 2020

Zane P. Leiden, Leiden & Leiden, Augusta, GA, for Debtor.

OPINION AND ORDER

Susan D. Barrett, United States Bankruptcy Judge This Order considers the proper interest rate a chapter 13 debtor is required to pay to satisfy 11 U.S.C. § 1325(b)(1)(A)¹ when he proposes to pay unsecured creditors in full while not committing all of his projected disposable income to his plan payments. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) and the Court has jurisdiction pursuant to 28 U.S.C. § 1334. For the following reasons, the Court concludes the proper interest rate is the Till formulaic approach. See Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004).

FINDINGS OF FACT

According to Debtor's chapter 13 means test, his annual income is above the median income and therefore his disposable income is determined by the means test. See §§ 1325(b)(3) and 707(b)(2). According to his means test, Debtor's monthly disposable income is $1,708.43. Dckt. No. 1 at 53. His monthly net income according to his bankruptcy schedules is $2,025.83. Dckt. No. 1, Sch. J.

Debtor proposes a chapter 13 plan with monthly plan payments of $830.00, well below his monthly disposable income. Dckt. No. 9. His plan further proposes to pay his general unsecured creditors in full or a pro rata share of $8,000.00, whichever is greater, at 5% interest, for sixty months. Dckt. No. 9, at ¶¶4(h) and 15.

Because Debtor's monthly disposable income of $1,708.43 on his means test and his net monthly income of $2,025.83 on his Schedule J are more than the $830.00/month he proposes to pay into his chapter 13 plan, the Chapter 13 Trustee ("Trustee") objects to confirmation of the plan arguing if Debtor opts to not commit all of his projected disposable income into the plan, he must pay interest to his unsecured creditors.² The Trustee contends the proper interest rate should be the Till rate, namely prime plus an appropriate risk factor. Currently, the prime rate is 3.25%.

Debtor concedes, based upon this Court's Barnes decision, he must pay interest to his general unsecured creditors and proposes a 5% interest rate. Debtor's Br., Dckt. No. 21; see In re Barnes, 528 B.R. 501, 503 (Bankr. S.D. Ga. 2015). Notwithstanding his offer to pay interest at 5%, Debtor contends the federal judgment interest rate (currently approximately 0.12%) is the proper rate under these circumstances. Debtor's Br., Dckt. No. 21 at 9.

CONCLUSIONS OF LAW

Pursuant to § 1325(b) the Court may not confirm a chapter 13 bankruptcy plan over the objection of the trustee unless a debtor pays unsecured creditors in full or devotes all his projected disposable income to his bankruptcy plan payments. See § 1325(b)(1)(A) and (B).³ Debtor and Trustee agree Debtor is not proposing to contribute all of his projected disposable income to the plan, therefore the issue becomes whether the proposed plan satisfies the provisions of § 1325(b)(1)(A).

There is a spilt of authority on whether interest is required under § 1325(b)(1)(A) and, for those courts requiring interest, there is a further spilt on the appropriate interest rate. See In re Barnes, 528 B.R. at 506 (requiring interest); In re Cheatham, 2017 WL 5614910, at *1 (Bankr. M.D. Fla. Nov. 20, 2017) (same); In re McKenzie, 516 B.R. 661, 664 (Bankr. M.D. Ga. 2014) (same); In re Braswell, 2013 WL 3270752, at *4 (Bankr. D. Or. June 27, 2013) (same); In re Hight-Goodspeed, 486 B.R. 462, 465 (Bankr. N.D. Ind. 2012) (same); In re Parke, 369 B.R. 205, 208 (Bankr. M.D. Pa. 2007 (same); contra In re Eubanks, 581 B.R. 583, 592 (Bankr. S.D. Ill. 2018) (interest is not required); In re Richall, 470 B.R. 245, 249 (Bankr. D.N.H. 2012) (same); In re Stewart–Harrel, 443 B.R. 219, 222–24 (Bankr. N.D. Ga. 2011) (same); In re Ross, 375 B.R. 437, 444 (Bankr. N.D. Ill. 2007) (same). The courts requiring interest have considered different rates including: interest calculated pursuant to the formula set out in Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (adopting the formula or prime-plus approach to determine the proper rate, commonly known as the " Till" rate) and the federal judgment interest rate under 28 U.S.C. § 1961.⁴ Compare In re Braswell, 2013 WL 3270752, at *4 (Bankr. D. Or. June 27, 2013) (adopting Till rate), with In re Parke, 369 B.R. 205, 209 (Bankr. M.D. Pa. 2007) (applying the federal judgment interest rate).

This Court previously followed the line of cases concluding that interest must be paid under § 1325(b)(1)(A) when an above median debtor chooses not to satisfy § 1325(b)(1)(B) and opts to retain a portion of his monthly disposable income rather than devote it to his bankruptcy plan. See In re Barnes, 528 B.R. at 506. The issue raised in the current case is the appropriate interest rate.

Trustee argues the Till rate is most appropriate because it reflects the financial reality. The Till rate is formulaic, calculated by "looking to the national prime rate, reported daily in the press, which reflects the financial market's estimate of the amount a commercial bank should charge a creditworthy commercial borrower to compensate for the opportunity costs of the loan, the risk of inflation, and the relatively slight risk of default" then "adjust[ing] the prime rate accordingly [by considering] such factors as the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan." Till, 541 U.S. at 479, 124 S.Ct. 1951. Prime is currently 3.25% and Trustee argues a 1.5 to 3% increase above the prime rate is the appropriate rate to compensate Debtor's general unsecured creditors for their risk over the life of the plan.

Conversely, Debtor argues the federal judgment interest rate, currently 0.12%, is the appropriate rate contending it satisfies § 1325(b)(1)(A) as it protects the time value of money while preventing unsecured creditors from receiving a windfall and preventing an absurd result: unsecured creditors potentially receiving more interest than both secured and priority creditors. Debtor argues this is more than an "unintended consequence," rather he contends it is absurd, ambiguous and inconsistent with the Bankruptcy Code. See Debtor's Br., Dckt. No. 21 at 8-9.

For the following reasons, this Court concludes the Till interest rate is the appropriate rate to satisfy the valuation requirement of § 1325(b)(1)(A) when an above median debtor opts to pay his unsecured claims in full over time without devoting all of his disposable income to his chapter 13 plan. In Till, the Supreme Court adopted the formula approach to determine the appropriate interest rate to pay a secured creditor whose claim was being cramdowned to the value of its collateral in a chapter 13. See Till, 541 U.S. at 478-79, 124 S.Ct. 1951. At the time of filing their petition, the Till debtors owed a creditor $4,894.89 for a car worth $4,000.00. See id. at 470, 124 S.Ct. 1951. In accordance with § 506, the creditor's claim was cramdowned to the value of the car, limiting the creditor's secured claim to $4,000.00, with the remaining $894.89 balance being unsecured. Id. The Supreme Court was then tasked with determining the proper interest rate to be paid on the secured portion of the claim - - the rate of interest to ensure that the payment to the secured creditor over the life of the plan would have "a total ‘value, as of the effective date of the plan,’ that equal[ed] or exceed[ed] the value of the creditor's allowed secured claim," thus satisfying § 1325(a)(5)(B)(ii). Id. at 474, 124 S.Ct. 1951. The Supreme Court concluded:

A debtor's promise of future payments is worth less than an immediate payment of the same total amount because the creditor cannot use the money right away, inflation may cause the value of the dollar to decline before the debtor pays, and there is always some risk of nonpayment. The challenge for bankruptcy courts reviewing such repayment schemes, therefore is to choose an interest rate sufficient to compensate the creditor for these concerns.

Till, 541 U.S. at 474, 124 S.Ct. 1951.

Although the Till interest rate was developed in the context of a cramdown situation, its approach best represents the appropriate time value of money and inherent risk of default in a chapter 13 bankruptcy case. Unsecured creditors arguably have a higher risk exposure because they do not have collateral securing their debt in the event of default, and their claims rank lower in priority, thus delaying their receipt of payment. When an above median debtor opts to retain a portion of his disposable income, the length of his plan increases, delaying repayment and potentially increasing the risk of nonpayment. The Till approach recognizes the financial realities and risks presented in a chapter 13 bankruptcy and provides an interest rate consistent with market conditions. See In re Hight-Goodspeed, 486 B.R. 462, 465 (Bankr. N.D. Ind. 2012) ("If a debtor would prefer to have a more flexible or less rigorous budget it may choose to devote less than all of its disposable income to the plan; but the price for doing so, and thereby paying unsecured creditors over a longer period of time, is that they must be paid in full with interest [because] interest represents the time value of money and compensation for the risk of default."); In re Braswell, 2013 WL 3270752, at *5 (Bankr. D. Or. June 27, 2013) ("If these funds are not saved, or employed in some other manner protecting the creditors' interest, their risk is enhanced.").

The Till rate properly puts the focus on the debtor and "the circumstances of the estate, the nature of the security, and the duration and feasibility of the reorganization plan." Till, 541 U.S. at 478-79, 124 S.Ct. 1951. Furthermore, this interpretation is consistent with similar language...