[CLBS] Does the Code require payment of interest on 100% pay out plans?

Thu Aug 17 09:49:18 MDT 2017

There's a split in the case law - all at the bk court level. On the one hand you have the Height-Goodspeed line of case which ultimately Kathleen relies upon. The other line of cases starts with Stewart-Harrell. In the 9th Circuit we have 2 bankruptcy level decisions out there on this issue that go both ways. Braswell out of Oregon supports the trustee's position while Egger out of Washington rejects the argument that you pay interest to unsecured creditors to satisfy 1325(b)(2). Attached are all the cases referenced and a few others. I'm not sure if there's anything at the BAP level or circuit level because I haven't look at the issue since early this year when I thought I was going to have brief the issue.

Alexandra O. Caval
Caval Law Office, P.C.
P.O. Box 1716
Twin Falls, ID 83303-01716
T: 208.733.2035
F: 208.733.3919
alex at cavallawoffice.com

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-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Randy French
Sent: Thursday, August 17, 2017 9:27 AM
To: 'Kathleen McCallister' <kam at kam13trustee.com>; CLBS at admws.idaho.gov; clbs-bounces at admws.idaho.gov
Subject: Re: [CLBS] Does the Code require payment of interest on 100% pay out plans?

It would help to have citation to a few cases so that debtor's counsel could understand the analysis.

Thanks.
Randy French

Law Office of Randal J. French, P.C.
Attorneys at Law
P.O. Box 836 
Boise, ID 83701 (208) 859-6881

IMPORTANT NOTICE: This communication, including any attachments, may contain information that may be confidential or privileged and is intended solely for the entity or individual to whom it is addressed. If you are NOT the intended recipient, you must delete this message and attachments and are hereby notified that any disclosure, copying, or distribution of this message is strictly prohibited. Nothing in this email, including any attachment, is to be a legally binding signature.

-----Original Message-----
From: Kathleen McCallister [mailto:kam at kam13trustee.com] 
Sent: Thursday, August 17, 2017 9:17 AM
To: Randy French; CLBS at admws.idaho.gov; clbs-bounces at admws.idaho.gov
Subject: RE: [CLBS] Does the Code require payment of interest on 100% pay out plans?

There is plenty of case law to support the Trustee's position.  

Kathleen

-----Original Message-----
From: CLBS [mailto:clbs-bounces at admws.idaho.gov] On Behalf Of Randy French
Sent: Wednesday, August 16, 2017 6:36 PM
To: CLBS at admws.idaho.gov; clbs-bounces at admws.idaho.gov
Subject: [CLBS] Does the Code require payment of interest on 100% pay out plans?

List mates

I just had an issue arise in a ch 13 case that was a 100% pay out plan.  The Trustee objected to confirmation on the basis that the Debtors had additional income beyond what was used to funds the plan and therefore they should pay interest on all claims.  I think that one of you should present a segment on confirmation of ch 13 plans at the seminar in February that addresses that issue.  Submit your bid to speak on this topic to I believe it would be Alex Caval.  This would also make a good article for the newsletter and for the Advocate.

I objected on the basis that 1325(b)(1)(A) only requires that allowed unsecured claims must be paid in full (no interest) or else the remainder of 1325(b)(1), that being 1325(b)(1)(B), would apply.  

There may be one approach by which interest would have to be paid on allowed unsecured claims.  That would be based upon the application of 1325(a)(4), the liquidation test.  If a ch 13 debtor had sufficient non-exempt assets that, in a chapter 7, creditors would be paid in full, then under 726(a)(5), unsecured creditors would get interest at the legal rate.  That being the case under chapter 7, §1325(a)(4) would seem to require interest to be paid in the chapter 13.  I have done no research to see if case law supports this, but it seems to me to be a straightforward application of the code.

The legal rate is the rate applied to judgments issued in federal court.  I believe that rate is 1.22 % for the month of July, 2017.  So, if in a chapter 7 liquidation, an unsecured creditor would receive its claim plus interest at the federal judgment rate, then in a ch 13 the Trustee would have the basis to require that as part of satisfying the liquidation test.  Otherwise, the fact that creditors are being paid in full does not trigger a requirement that a debtor pay interest on unsecured claims.

28 USC ☻11961 is applicable:

Title 28. Judiciary and Judicial Procedure Part V--Procedure, Chapter 125--Pending Actions and Judgments, § 1961.Interest 

(a) Interest shall be allowed on any money judgment in a civil case recovered in a district court. Execution therefor may be levied by the marshal, in any case where, by the law of the State in which such court is held, execution may be levied for interest on judgments recovered in the courts of the State. Such interest shall be calculated from the date of the entry of the judgment, at a rate equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week preceding. [FN1] the date of the judgment. The Director of the Administrative Office of the United States Courts shall distribute notice of that rate and any changes in it to all Federal judges. 

(b) Interest shall be computed daily to the date of payment except as provided in section 2516(b) of this title and section 1304(b) of title 31, and shall be compounded annually. 

(c) 

1. This section shall not apply in any judgment of any court with respect to any internal revenue tax case. Interest shall be allowed in such cases at the underpayment rate or overpayment rate (whichever is appropriate) established under section 6621 of the Internal Revenue Code of 1986. 

2. Except as otherwise provided in paragraph (1) of this subsection, interest shall be allowed on all final judgments against the United States in the United States Court of Appeals for the Federal circuit, at the rate provided in subsection (a) and as provided in subsection (b). 

3. Interest shall be allowed, computed, and paid on judgments of the United States Court of Federal Claims only as provided in paragraph (1) of this subsection or in any other provision of law. 

4. This section shall not be construed to affect the interest on any judgment of any court not specified in this section. 

Thanks.

Randy French

Law Office of Randal J. French, P.C.

Attorneys at Law

tP.O. Box 836 tBoise, ID 83701 t(208) 859-6881t 

IMPORTANT NOTICE: This communication, including any attachments, may contain information that may be confidential or privileged and is intended solely for the entity or individual to whom it is addressed. If you are NOT the intended recipient, you must delete this message and attachments and are hereby notified that any disclosure, copying, or distribution of this message is strictly prohibited. Nothing in this email, including any attachment, is to be a legally binding signature.

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