June 4, 2007
Another 1325(a)(5) Issue
Kristin Schroeder Simpson
In 2004, in Till v. SCS Credit Corp., 541 U.S. 465, the Supreme Court's plurality opinion established that under pre-BAPCPA 11 U.S.C. section 1325(a)(5)(B) that the appropriate "cramdown" interest rate was not the contract rate but "prime plus risk," a calculation that should factor the plan's feasibility, the estate, and the type of security.
As discussed in the previous post, BAPCPA added new 1325(a)(5) requirements. What, if any, of the new provisions change the Till cramdown interest rate calculation for a secured creditor? A new bankruptcy ruling holds that the contract rate may rise again.
Judge Pamela S. Hollis, Bankruptcy Judge for the Northern District of Illinois, addressed a new 1325(a)(5) provision In In re Williams, -- B.R. --, available at 2007 WL 1206738 (Bankr. N.D. Ill., April 23, 2007). In Williams, the secured car lender objected to the debtor's chapter 13 plan, which provided for a 10.25% interest rate (at the time, prime + 2%). AmeriCredit, the lender, and the debtor's contract provided for a 19.75% rate. Factually significant, the debtor had previously filed chapter 13, converted to a chapter 7 and received a chapter 7 discharge in 2005. See 1328(f).
The debtor responded to AmeriCredit's objection by arguing that Till stands for the total rejection of the contract rate in a cramdown confirmation. Judge Hollis disagreed. She reasoned that Williams' argument stretched Till to a statute that it didn't address because BAPCPA section 1325(a)(5)(B)(i)(I) provides that the secured creditor retain the lien until discharge or "the payment of the underlying debt determined under nonbankruptcy law . . . ." 1325(a)(5)(B)(i)(I)(aa).
Judge Hollis holds that while Till still requires a prime plus risk calculation, the new section (aa) contains different language than (B)(ii)'s requirement that the secured creditor receive "the value, as of the effective date of the plan, of property to be distributed under the plan on account of such claim is not less than the allowed amount of such claim . . . . " Further noting that Till came down 11 months prior to BAPCPA's enactment [and the legislation had been pending for years], "Congress did not use the same language in 1325(a)(5)(B)(i)(I)(aa) as in 1325(a)(5)(B)(ii), and the court must therefore find that Congress meant something different." Williams, at *3.
The court sustained AmeriCredit's objection and denied confirmation, holding that the new 1328(f) precluded Williams' discharge in a chapter 13, and therefore the phrase "applicable nonbankruptcy law" in 1325(a)(5)(B)(i)(I)(aa) required her to pay the contract rate of 19.75%.
See also In re Flemming, 339 B.R. 716 (Bankr. E.D. Mo. 2006).