In re Smith

594 B.R. 376

IN RE: James SMITH, Jr., Debtor

Case Number: 18-10836

United States Bankruptcy Court, W.D. Louisiana, Shreveport Division.

Signed December 3, 2018

Jessica P. Johnston, The Cook Law Firm, Haughton, LA, for Debtor.

Order Denying Plan Confirmation

JOHN S. HODGE, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the confirmation of Debtor's Chapter 13 Plan (Doc. No. 28) and the objection thereto (Doc. No. 29) filed by the holder of a secured claim. For the following reasons, confirmation of the Plan is DENIED .

I. Jurisdiction, Core Status and Judicial Power to Enter this Order

This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and by virtue of the reference by the district court pursuant to 28 U.S.C. § 157(a) and LR 83.4.1. All claims presented to this Court are "core" pursuant to 28 U.S.C. § 157 (b)(2)(A), (L) and (O).

The Supreme Court's ruling in Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), sets forth certain limitations on the constitutional authority of bankruptcy courts to enter final orders. BP RE, L.P. v. RML Waxahachie Dodge, L.L.C., 735 F.3d 279, 286 (5th Cir. 2013) (" ‘the question is whether the action at issue stems from the bankruptcy itself or would necessarily be resolved in the claims allowance process.’ ") (quoting Stern, 131 S.Ct. at 2618 ); Thus, under Stern , in addition to determining whether each claim is core or non-core, this Court must also determine whether the underlying issue "stems from the bankruptcy itself or it would necessarily be resolved in the claims allowance process." BP RE, 735 F.3d at 286. Absent both statutory and constitutional authority, this Court may not enter a final order, and instead must issue proposed findings of fact and conclusions of law to be considered by the district court.

The Supreme Court has made clear that an order denying confirmation of a proposed Chapter 13 plan is not a final order. Bullard v. Blue Hills Bank, ––– U.S. ––––, 135 S.Ct. 1686, 1690, 191 L.Ed.2d 621 (2015) ("The question presented is whether such an order denying confirmation is a ‘final’ order that the debtor can immediately appeal. We hold that it is not."). Moreover, even if this Order could be construed to constitute a final order, the issues presented in this case stem from the bankruptcy itself as a dispute over the confirmation of a plan can only arise in a bankruptcy case. Therefore, there are no Stern issues in this case.

II. Procedural Background

On May 31, 2018 (the "Petition Date "), James Smith, Jr. ("Debtor ") filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code (Doc. 1). On June 12, 2018, Debtor filed his Chapter 13 plan (Doc. 9). After objections were raised by the Trustee (Docs. 19, 20), Debtor filed an Amended Plan (Doc. 23). After subsequent objections by both the Trustee (Doc. 27) and JPMorgan Chase Bank, National Association ("Creditor ") (Doc. 26), Debtor filed a second Amended Plan (Document No. 28). Creditor once again objected (Doc. 29) to confirmation of the Plan because it provided for an interest rate (6.75%) less than the contractual rate (9.25%) on Debtor's principal residence and the proposed interest rate is less than the presumptive rate contemplated by the Supreme Court's holding in Till v. SCS Credit Corp., 541 U.S. 465, 124 S.Ct. 1951, 158 L.Ed.2d 787 (2004).

Creditor's claim of approximately $11,000 (Claim No. 6) is secured by a first-priority mortgage on Debtor's principal residence valued at approximately $95,000 as evidenced by Debtor's schedules. (Doc. No. 8). Debtor's loan is scheduled to mature on May 1, 2022, and the final payment under Debtor's sixty (60) month Plan is scheduled for May 1, 2023. (Doc. 32). As a result, it is undisputed that: (1) Creditor is the holder of over-secured claim because the value of the collateral far exceeds the amount of the debt; and (2) Debtor's last payment on the original payment schedule is due to Creditor before the due date of the last payment under the Plan.

Creditor objected to the confirmation of the Plan on two grounds. First, Creditor argued it is entitled to its contractual interest rate (9.25%) from the Petition Date through the confirmation date pursuant to the provisions of § 506(b) of the Bankruptcy Code. Second, Creditor argued it is entitled to the Till interest rate as calculated on the confirmation date rather than the Petition Date. Importantly, Creditor did not challenge Debtor's "prime plus" formula used to calculate the Till rate (national prime rate plus 2%). Instead, with respect to the calculation of the Till rate, Creditor's sole objection was that Debtor used the wrong date. In this case, the date used for calculating the Till rate is significant because the prime rate increased after the Petition Date. Because the prime rate as of the Petition Date and the prime rate as of the confirmation date are different, the Court must determine which of these two dates to use—or whether to use some other date to calculate the cramdown interest rate under Till .

III. Analysis

For the reasons set forth below, this Court holds: (i) pursuant to the provisions of § 506(b) of the Bankruptcy Code, a secured creditor is entitled to the allowance of its contractual rate of interest from the Petition Date until the day before the confirmation date; and (ii) pursuant to the provisions of § 1325(a)(5)(B)(ii) of the Bankruptcy Code, a debtor may modify a secured creditor's rights, including the contractual interest rate, as of the date of the entry of the confirmation order.

1. Anti-Modifications provisions of § 1322(b) do not apply in this case .

Ordinarily, a chapter 13 debtor may not modify the contractual interest rate on a home mortgage through a confirmed plan because the Bankruptcy Code provides that a debtor's plan may "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor's principal residence." 11 U.S.C. § 1322(b)(2). The Code grants an exception to the above exception when:

[T]he last payment on the original payment schedule for a claim secured only by a security interest in real property that is the debtor's principal residence is due before the date on which the final payment under the plan is due, the plan may provide for the payment of the claim as modified pursuant to Section 1325(a)(5).

11. U.S.C. § 1322(c)(2).

In this case, all parties agree that the exception to the exception under § 1322(c)(2) applies which permits Debtor to modify the contractual interest rate on his home mortgage through a confirmed chapter 13 plan pursuant to § 1325(a)(5).

2. Cramdown confirmation standards

As noted by the Supreme Court, in order to obtain confirmation of a Chapter 13 plan, "the plan must accommodate each allowed secured creditor in one of three ways: (1) by obtaining the creditor's acceptance of the plan [ 11 U.S.C. § 1325(a)(5)(A) ]; (2) by surrendering the property securing the claim [ 11 U.S.C. § 1325(a)(5)(C) ]; or (3) by providing the creditor both a lien securing the claim and a promise of future property distributions (such as deferred cash payments) whose total ‘value, as of the effective date of the plan, ... is not less than the allowed amount of the claim." Till, 541 U.S. at 468, 124 S.Ct. 1951 (citing and quoting § 1325(a)(5)(B)(ii) ). The third avenue—which Debtor has chosen in the case at bar—is "commonly known as the ‘cram down option’ because it may be enforced over a claim holder's objection." Id. at 469, 124 S.Ct. 1951. Typically, under a cramdown, the plan pays the creditor's claim through installment payments, which requires that "over time, the creditor receives disbursements whose total present value equals or exceeds that of the allowed claim." Id. (stating that because the claim is paid over time, it must bear interest).

A debtor opting for the cramdown option must satisfy three (3) requirements imposed by § 1325(a)(5)(B). These are that the plan provide: (1) that the holder of a secured claim retain its lien until "payment of the underlying debt ... or discharge under Section 1328," (2) that payment on the debt be made in "equal monthly amounts," and (3) that the plan may be confirmed with respect to an allowed secured claim if "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." 11 U.S.C. § 1325(a)(5)(B)(i)-(iii) (emphasis added).

In this case, Debtor's Plan satisfies the first two requirements of § 1325(a)(5)(B). The question is whether the Plan satisfies the third requirement mandating that it provide for the present value of the claim on the effective date of the Plan.

3. The Till rate should be calculated as of the Confirmation Date

In Till, the Supreme Court mandated a prime-plus formula for interest rates in the case of cramming down a claim. Such an approach begins with the national prime rate and then adjusts that rate, typically upwards, on account of the risk of nonpayment. This modified prime-plus approach is often described as the " Till rate."

Determination of the cramdown interest rate is governed by the cramdown provision in the Bankruptcy Code which reads as follows: "...[T]he court shall confirm a plan if ... with respect to each allowed secured claim provided for by the plan—the plan provides that ... 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 ...." 11 U.S.C. § 1325(a)(5)(B)(ii) (emphasis added).

By its terms, § 1325(a)(5)(B)(ii) focuses on the value of property as of the effective date of the Plan. In re Texas Grand Prairie Hotel Realty, L.L.C., 710 F.3d 324, 333 n.53 (5th Cir. 2013) ("The general consensus that has emerged provides that a one to three percent adjustment to the prime rate as of the effective date [of the plan] is appropriate.")(...