In re Stringer

• Decision Date: 20 March 2014
• Docket Number: No. 13–13430–JDW.,13–13430–JDW.
• Citation: 508 B.R. 668
• Court: U.S. Bankruptcy Court — Northern District of Mississippi
• Parties: In re Erica STRINGER, Debtor.

508 B.R. 668

In re Erica STRINGER, Debtor.

No. 13–13430–JDW.

United States Bankruptcy Court,

N.D. Mississippi.

Signed March 20, 2014.

William L. Fava, Mitchell, Cunningham & Fava, Southaven, MS, for Debtor.

MEMORANDUM OPINION AND ORDER SUSTAINING IN PART AND OVERRULING IN PART OBJECTION TO CONFIRMATION

JASON D. WOODARD, Bankruptcy Judge.

This matter came before the Court for hearing on November 5, 2013, on the Objection to Confirmation of Chapter 13 Plan (the “Objection”) (Dkt. # 13) filed by Third Union Finance, Inc. (the “Creditor”) in the above-styled chapter 13 bankruptcy case of Erica Stringer (the “Debtor”). At the hearing on the Objection, Bart Adams, counsel for the Creditor, and William Fava, counsel for the Debtor, appeared and requested an opportunity to brief the legal issues, as the facts are not in dispute. Accordingly, an order setting a briefing schedule was entered on November 18, 2013 (Dkt. # 25).

The Creditor filed its brief on January 2, 2014 (Dkt. # 33). Also on January 2, 2014, Mississippi Consumer Finance Association (“MCFA”) filed a Motion for Leave to File an Amicus Curiae Brief in support of the Creditor's position. The Court granted the motion, and MCFA filed its brief on January 2, 2014 (Dkt. # 32). On January 4, 2014, the Debtor filed her response brief (Dkt. # 34). On January 22, 2014, attorney Robert Gambrell filed a Motion for Leave to File Amicus Curiae Brief in support of the Debtor's position (Dkt. # 37), which was granted by the Court (Dkt. # 38). On January 30, 2014, Mr. Gambrell filed his Amicus Curiae Brief in Opposition to Creditor's Objection (the “Gambrell Brief”)(Dkt. # 40). The Creditor filed a reply brief to the Gambrell Brief on February 12, 2014 (Dkt. # 41). The issues presented in the Objection have now been fully briefed and are properly before the Court for resolution. This Court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157(a) and 1334(b) and the United States District Court for the Northern District of Mississippi's Order of Reference of Bankruptcy Cases and Proceedings Nunc Pro Tunc dated August 6, 1984. This is a core proceeding arising under Title 11 of the United States Code as defined in 28 U.S.C. § 157(b)(2)(A), (B), (L), and (O).

I. FINDINGS OF FACT¹

The following facts are undisputed (Dkt. # 33 and 34). On or about November 17, 2011, Debtor obtained a loan from Creditor (the “First Loan”). Pursuant to the terms of the First Loan, Debtor agreed to repay Creditor $845.57 in twelve monthly installments. The Debtor pledged various items of personal property as collateral to secure the First Loan. The Debtor made payments as scheduled until March 14, 2012, when she refinanced the remaining balance (the “Second Loan”). Under the terms of the Second Loan, the Debtor received additional cash and agreed to repay a total of $3,890.56. As collateral for the Second Loan, Debtor pledged the same personal property, plus a 2010 Nissan Altima (collectively, the “Collateral”). On April 13, 2012, the Debtor refinanced the Second Loan (the “Third Loan”). Under the terms of the Third Loan, the Debtor again received additional cash, again pledged the Collateral, and agreed to repay a total of $10,629.75. The Debtor made the agreed-upon payments under the Third Loan until March 29, 2013, when she refinanced the Third Loan (the “Fourth Loan”). Under the terms of the Fourth Loan, the Debtor again received additional cash. Altogether, the Debtor financed $6,711.96, but she agreed to repay $10,673.61, which includes a finance charge of $3,961.65. The contract rate of interest for the Fourth Loan was 27.84%. The Debtor again pledged the Collateral for the Fourth Loan. The total value of the Collateral at the time of the Fourth Loan was $12,400.²

On August 19, 2013, the Debtor filed her voluntary chapter 13 bankruptcy petition. Along with her petition, the Debtor also filed her proposed chapter 13 plan, in which she proposed to pay the Creditor the unpaid principal owed on the Fourth Loan, approximately $6,175.00, plus 7% interest over the 60–month life of the plan. The Creditor timely filed its objection to confirmation of the plan on September 3, 2013, arguing that as an oversecured creditor, it is entitled to its contract rate of interest, 27.84%, in order to receive the value of its claim as required by § 1325(a)(5)(B)(ii).³ Hence, the only issue for the Court to decide is the proper interest rate(s) to be applied to the Creditor's claim.

II. CONCLUSIONS OF LAW

A. Pre–Confirmation Interest

There are two distinct periods during which a secured creditor may be entitled to interest in a chapter 13 case—(1) post-petition but pre-confirmation ⁴ (the “interim period”), and (2) post-confirmation. Typically, once a bankruptcy case is filed, a creditor is not entitled to interest on its claim during the interim period. Section 506(b) of the Bankruptcy Code is an exception to this general rule, providing that a creditor whose claim is secured by property with a value greater than the amount of its claim is allowed “interest on such claim.” Although oversecured creditors are entitled to interest during the interim period, the Bankruptcy Code does not specify the interest rate to which such oversecured creditors are entitled. United States v. Ron Pair Enters., Inc., 489 U.S. 235, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Interest at the contract rate is not mandated by § 506(b), and, indeed, even oversecured creditors who hold nonconsensual liens are entitled to interest under § 506(b), though there is no underlying agreement providing for interest. Ron Pair, 489 U.S. at 241, 109 S.Ct. 1026. While Ron Pair is clear that § 506(b) does not require interim period interest to accrue at the contract rate, the case is silent as to what rate should apply.

The United States Court of Appeals for the Fifth Circuit, relying upon pre-Code law, has held that when an oversecured creditor's claim arises from a contract, the contract provides the interim period interest rate. Bradford v. Crozier (In re Laymon), 958 F.2d 72, 75 (5th Cir.1992). Accordingly, binding precedent in the Fifth Circuit is clear that an oversecured creditor is entitled to interest at the contract rate during the interim period. As the parties agree that the Creditor's claim is oversecured in this case, the Creditor is entitled to interim period interest at the contract rate, 27.84%.

The Court's inquiry into the appropriate interest rate does not end here, however, because “§ 506(b) applies only from the date of filing through the confirmation date.” Fin. Sec. Assurance, Inc. v. T–H New Orleans Ltd. P'ship (In re T–H New Orleans Ltd. P'ship), 116 F.3d 790, 797 (5th Cir.1997) (citing Rake v. Wade, 508 U.S. 464, 468, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993), superseded on other grounds by statute, 11 U.S.C. 1322(e)). See also First United Sec. Bank v. Garner (In re Garner), 663 F.3d 1218, 1221 (11th Cir.2011); Countrywide Home Loans, Inc. v. Hoopai (In re Hoopai), 581 F.3d 1090, 1099 (9th Cir.2009); Telfair v. First Union Mortg. Corp., 216 F.3d 1333, 1338–39 (11th Cir.2000); Key Bank Nat'l Ass'n v. Milham (In re Milham), 141 F.3d 420, 425 (2d Cir.1998). Section 506(b), in conjunction with § 506(a), effectively establishes the amount of the claim on the date of confirmation, but not the post-confirmation interest rate that accrues on the claim. Garner, 663 F.3d at 1220. While the Creditor is clearly entitled to post-confirmation interest, this entitlement is not prescribedby § 506(b), which has no applicability beyond the plan confirmation date.

B. Post–Confirmation Interest

“Chapter 13 expressly authorizes a bankruptcy court to modify the rights of any creditor whose claim is secured by an interest in anything other than real property that is the debtor's principal residence.” Till v. SCS Credit Corp., 541 U.S. 465, 474, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004) (citing § 1322(b)). Accordingly, through the plan confirmation process, a court may “modify the number, timing, or amount of the installment payments from those set forth in the debtor's original contract.” Id. Section 1325 of the Bankruptcy Code sets forth the requirements for confirmation of a chapter 13 plan, and, specifically, § 1325(a)(5) contains the requirements for the treatment of a secured claim. In order to be confirmed, a chapter 13 debtor's plan must provide for each secured creditor in one of three ways. First, the creditor may consent to its treatment under the plan. 11 U.S.C. § 1325(a)(5)(A). The Creditor has not done so here. Second, a debtor may surrender the collateral securing the creditor's claim. 11 U.S.C. § 1325(a)(5)(C). The Debtor does not propose to do so here. The third alternative, commonly known as a “cram down,” is the option proposed by the Debtor in this case. To utilize the cramdown option, the affected secured creditor must receive a distribution of property over the life of the plan with a present value of not less than the allowed amount of its secured claim. 11 U.S.C. § 1325(a)(5)(B); In re Pryor, 341 B.R. 648 (Bankr.C.D.Ill.2006). Property distributions under § 1325(a)(5)(B) most often take the form of a stream of future payments over the chapter 13 plan term. Rake, 508 U.S. at 472 n. 8, 113 S.Ct. 2187.

A creditor receives the “present value” of its claim “only if the total amount of the deferred payments includes the amount of the underlying claim plus an appropriate amount of interest to compensate the creditor for the decreased value of the claim caused by the delayed payments.” Rake, 508 U.S. at 472 n. 8, 113 S.Ct. 2187. In other words, § 1325(a)(5)(B) requires that a secured creditor's claim must be paid either in full at the time of confirmation, or over time with interest. DaimlerChrysler Servs. N. Am., LLC v. Taranto (In re Taranto), 365 B.R. 85, 89 (6th Cir. BAP 2007) (citing Till, 541 U.S. at 473–74, 124 S.Ct. 1951). Accordingly, in a cramdown situation, on the confirmation date, the amount of the claim is...