Matter of Richards
| Decision Date | 26 October 1989 |
| Docket Number | Bankruptcy No. 89-51726. |
| Parties | In the Matter of Byron M. RICHARDS, Debtor. WAREHOUSE HOME FURNISHINGS DISTRIBUTORS, INC. d/b/a Farmers Furniture Company, Movant, v. Byron M. RICHARDS and Camille Hope, Trustee, Respondents. |
| Court | U.S. Bankruptcy Court — Middle District of Georgia |
Sharon R. Jones, Milledgeville, Ga., for debtor.
Bruce M. Hofstadter, Macon, Ga., for movant.
Kristin Smith, Deputy Trustee, Macon, Ga., for trustee.
Byron M. Richards, Debtor, filed a petition under Chapter 13 of the Bankruptcy Code on July 14, 1989. Warehouse Home Furnishings Distributors, Inc. d/b/a Farmers Furniture Company, Movant, filed an objection to confirmation on September 1, 1989. Movant contends that Debtor's plan does not pay present value on Movant's secured claim because the plan does not propose to pay interest at the contract rate. Movant also contends that Debtor acted in bad faith when Debtor purchased furniture from Movant when Debtor allegedly was insolvent. The Court heard oral arguments on the issues presented on October 12, 1989.
Debtor purchased household furniture from Movant in October 1988 and April 1989. Debtor signed two retail installment contracts giving Movant a security interest in the furniture purchased. The annual percentage rate in the October 1988 contract is 23.02. The annual percentage rate in the April 1989 contract is 23.09. Debtor admits that Movant is a fully secured creditor.
Section 1325(a)(5) of the Bankruptcy Code1 provides that the confirmation requirements for "each allowed secured claim provided for by the plan" can be met in one of three ways. Section 1325(a)(5) provides:
Movant has not accepted Debtor's plan. Debtor does not intend to surrender the furniture to Movant. Debtor, therefore, must pay Movant the value of its allowed secured claim. Under this "cram down" provision, Debtor's payments to Movant under his Chapter 13 plan must have a present value equal to Movant's allowed secured claim. In re Mothershed, 62 B.R. 113, 114 (Bankr.E.D.Ark.1986); In re Mitchell, 39 B.R. 696, 700 (Bankr.D.Or. 1984); In re Klein, 10 B.R. 657, 661 (Bankr.E.D.N.Y.1981).
The purpose of the present value requirement is to compensate the creditor for the delay in receiving payment of the allowed secured claim. 5 Collier on Bankruptcy ¶ 1325.064biiiB (15th ed. 1989). Bankruptcy courts have almost uniformly agreed that the proper method of providing creditors with the equivalent of the value of their claim is to require the debtor to pay interest on the claim throughout the payment period. See United States v. Southern States Motor Inns, Inc. (In re Southern States Motor Inns, Inc.), 709 F.2d 647, 650 (11th Cir.1983), cert. denied, 465 U.S. 1022, 104 S.Ct. 1275, 79 L.Ed.2d 680 (1984). The issue before the Court is what rate of interest represents present value.
There is no consensus among the courts on what constitutes an appropriate rate of interest.2 Among the varying rates that have been used:
The United States Court of Appeals for the Eleventh Circuit, in United States v. Southern States Motor Inns, Inc. (In re Southern States Motor Inns, Inc.),3 noted that "value, as of the effective date of the plan" is identical in Chapter 134 and section 1129(a)(9)(C) of the Bankruptcy Code.5 The court stated:
We believe Congress intended that creditors required to accept deferred payments pursuant to § 1129(a)(9)(C) should be placed in as good a position as they would have been had the present value of their claims been paid immediately. Consequently, we hold that the interest rate to be used in computing present value of a claim pursuant to § 1129(a)(9)(C) should be the current market rate without any reduction for the "rehabilitation aspects" of the plan.
Debtor proposes to pay twelve percent interest on Movant's secured claim. In the alternative, Debtor urges the Court to select an interest rate based upon either the prime rate, fifty-two week Treasury Bills, or certificates of deposit (one year term). Debtor demonstrated that the current interest rates are as follows:
Prime Rate 10.50%
52-week Treasury Bills 8.38%
Certificate of Deposit 8.24%
(one year term)
Debtor contends that the twelve percent interest proposed in his plan is all that he can afford to pay. The Eleventh Circuit, however, in In re Southern States Motor Inns, Inc. stated:
As noted in In re Benford, supra, a Chapter 13 case construing language identical to that found in § 1129(a)(9)(C) "the statute reads `value, as of the effective date of the plan\'; it does not read `value, as of the effective date of the plan, but subject to reduction depending on the debtor\'s ability to pay\'." 14 B.R. at 161.
The court continued stating:
Obviously, a plan should not be confirmed unless it is feasible. The debtor\'s ability to pay, however, is irrelevant when the question is whether the plan provides for payment of the present value of a creditor\'s claim as required by § 1129(a)(9)(C).
709 F.2d at 653, n. 9. The Court is persuaded that Debtor's ability to pay should not be considered in determining the appropriate interest rate for present value purposes.
Trustee urges the Court to adopt the "legal rate of interest" as the appropriate method for determining present value. Trustee argues that a floating rate would be difficult for her to calculate and administer. Trustee contends that the legal rate reasonably compensates secured creditors for the delay in receiving payments under the Chapter 13 plan. Trustee contends that the legal rate of interest is twelve percent per annum. See O.C.G.A. § 7-4-12 (1989) (); contra 28 U.S.C.A. § 1961(a) (West Supp.1989) (); DuVoisin v. Anderson (In re Southern Industrial Banking Corp., 87 B.R. 518, 520 (Bankr.E.D.Tenn.1988) ().
The Court is aware that a floating interest rate, in addition to being administratively difficult for Trustee to administer, renders the preparation and determination of the feasibility of a debtor's plan quite complicated. See United States v. Doud, 869 F.2d at 1146.
Movant contends that the interest rate should be the same as the contract rate. Movant contends that any other rate is a renegotiation of the contract without the creditor's consent. Movant argues that Debtor agreed to pay the contract rate when he purchased the furniture. Finally, Movant contends that Congress presumes that the contract rate is the interest rate for present value purposes.
During the legislative process leading to the Bankruptcy Amendments and Federal Judgeship Act of 1984, Congress specifically considered an amendment requiring the contract rate of interest to be paid and rejected it. 5 Collier on Bankruptcy ¶ 1325.064biiiB (15th ed. 1989). One amendment considered read as follows:
H.R. 4786, 97th Cong., 1st Sess. § 19(2)(A) (1981) (emphasis added). The Court is persuaded that, in the early 1980's, Congress considered and rejected the requirement...
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