Brian Jeffrey Phillips and Stephanie Marie Phillips

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
BRIAN JEFFREY PHILLIPS
STEPHANIE MARIE PHILLIPS
EDMOND VICTOR SMOTHERS
GWEN WILKINS SMOTHERS
MICHAEL DOUGLAS BEAVER
CATHERINE E. BEAVER
DEBTORS
CASE NO.
06-00146-5-ATS
06-00122-5-ATS
05-06123-5-ATS
ORDER ALLOWING OBJECTIONS TO CONFIRMATION
The matters before the court are the objections to confirmation
filed in these three chapter 13 cases. A hearing took place in
Raleigh, North Carolina on October 11, 2006.
Brian Jeffrey Phillips and Stephanie Marie Phillips filed a
petition for relief under chapter 13 of the Bankruptcy Code on February
6, 2006. CarMax Auto Finance holds a security interest in the
Phillipses' 2001 Ford Expedition with a payoff of $14,607.42 plus
interest at 7.95 percent. The Phillipses' plan proposes to allow
SO ORDERED.
SIGNED this 13 day of October, 2006.
________________________________________
A. Thomas Small
United States Bankruptcy Judge
____________________________________________________________
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1 The Till rate is a formula rate of interest, consisting of the
prime rate plus a risk factor. In this district, the standard risk
factor applied is two percent. The current Till rate is the prime rate
of 8.25 percent, plus a risk factor of 2 percent, for a total of 10.25
percent.
2
CarMax's claim as secured in the amount of $13,400, with interest at
the contract rate. CarMax objected to this treatment, contending that
the proper rate of interest pursuant to Till v. SCS Credit Corp., 541
U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (2004), is 10.25 percent
(the "Till rate").1
Edmond Victor Smothers and Gwen Wilkins Smothers filed a petition
for relief under chapter 13 of the Bankruptcy Code on February 1, 2006.
CarMax holds a security interest in the Smotherses' 1996 Nissan Quest
with a payoff of $6,268.31 plus interest at 8.95 percent. The
Smotherses' plan proposes to allow CarMax's claim as secured in the
amount of $4,550, plus interest at the contract rate. Again, CarMax
contends that the proper rate of interest is the Till rate, or 10.25
percent.
Michael Douglas Beaver and Catherine E. Beaver filed a petition
for relief under chapter 13 of the Bankruptcy Code on December 1, 2005.
Coastal Federal Credit Union ("CFCU") holds a security interest in the
Beavers' 2000 Buick Regal with a payoff of $5,726.18 plus interest at
7.25 percent. CFCU also holds a security interest in the Beavers' 1996
GMC Sierra with a payoff of $6,061.86 plus interest at 6 percent. The
Beavers' plan proposes to allow CFCU's claims as fully secured at the
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2 Though there was some confusion about this at the hearing, both
of the Beavers' vehicles were purchased within 910 days of the petition
date and are thus subject to the hanging paragraph of 11 U.S.C. §
1325(a), which no longer allows debtors to strip down the secured claim
to the value of the vehicle.
3
contract rates of interest. CFCU contends that the proper rate of
interest is the Till rate, or 10.25 percent.2
The debtors all contend that Till dictates the lower of the
formula rate established by Till or the contract rate. They maintain
that creditors will receive a windfall, particularly in cases in which
creditors are receiving the full payoff amount of their debt as
secured, if the greater rate applies.
This issue has already been addressed in this district as it
applies in the Beavers' case. In In re Brooks, 344 B.R. 417, 422
(Bankr. E.D.N.C. 2006), Judge Leonard adopted the majority view that
the Till rate of interest applies in so-called "910 claims," or those
governed by the hanging paragraph of § 1325(a), noting that Till was
not abrogated by the Bankruptcy Abuse Prevention and Consumer
Protection Act of 2005. This court adopted Brooks in its entirety in
In re Yisrael, 05-06137-5-ATS (August 4, 2006). Accordingly, CFCU's
objection to confirmation is allowed in the Beaver case, as the Till
rate should be applied to CFCU's claim.
With respect to the Smothers and Phillips cases, which are
traditional "cram down" cases in which the terms of the loan are
modified through an extension of the repayment term and/or the strip
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4
down of the lien to the value of the car, the court disagrees with the
debtors' reading of Till. Till created a uniform methodology to
establish an interest rate in cram down cases that acknowledges the
risk of loss that comes with a bankruptcy case. It would be contrary
to the idea of adding a "risk" factor in the Till formula to apply the
lower of the contract rate or the Till rate. If a creditor offered a
debtor a zero percent incentive rate and was later crammed down at zero
percent, the creditor has lost not only the full benefit of its secured
claim, but also bears the entire risk of default or depreciation.
Accordingly, the court concludes that the Till rate applies to vehicle
claims in which the secured claim has been reduced to the value of the
vehicle or the contract has been otherwise modified ( e.g., the term
lengthened), and CarMax's objections to confirmation will be allowed in
the Smothers and Phillips cases.
Finally, the parties inquired at the hearing as to the proper date
to establish the interest rate. The creditors and debtors seemed to
agree that applying the interest rate on the petition date was the most
practical from an administrative perspective. Accordingly, unless
there is an objection in a particular case, the Till rate is to be
established on the petition date, rather than on the date of
confirmation.
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Based on the foregoing, the objections to confirmation are
ALLOWED. The Till rate of interest, as of the petition date for each
of these cases, must be provided in the debtors' plans.
SO ORDERED.
END OF DOCUMENT
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