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Till v. SCS Credit Corp. (US Sup Ct 05/17/04 – No. 02-1016) Four justices conclude that the “prime-plus” or “formula rate” best meets the purposes of the Bankruptcy Code’s cram down provision; because the proposed 9.5% interest rate is higher than the risk-free rate, it is sufficient to account for the time value of money, which is all 11 U.S.C. section 1325(a)(5)(B)(ii) requires.
WILL TILL APPLY IF INTEREST IS LOWER THAT PRIME? The Prime Plus Approach will still apply when the contract rate is lower than the prime rate. In Till, the original loan had an interest rate of 21.0% per annum. 541 U.S. at 470. The prime rate was significantly lower at approximately 8.0%. Id. at 471. Thus, after Till, courts began to question whether the Prime Plus Approach still applies when the contract rate of interest is lower than the prime rate; ultimately, however, they have concluded that the contract rate is irrelevant. See, e.g., In re Taranto, 365 B.R. 85, 90 (B.A.P. 6th Cir. 2007); In re Tirey, 350 B.R. at 69; In re Soards, 344 B.R. 829, 832 (Bankr. W.D. Ky. 2006). Indeed, “[s]imply stated, where the plan proposes to pay the secured claim in installments over time, the Till rate of interest must be added to the payment to arrive at the present value of the claim and the contract rate of interest is irrelevant to the analysis.” In re Soards, 344 B.R. at 832.
Onink v. Cardelucci (04/12/02 – No. 00-56541) (9th Cir. April 12, 2002) Awards of post-petition interest to creditors are to be calculated using the federal judgment interest rate, and not the rate set forth in the parties’ contract or state law; use of federal rate promotes uniformity of law and fairness among creditors, and does not violate due process. Court concluded that 11 USC Section 726(a)(5) mandates the use of federal judgment rate, rather than contract interest rate. Federal interest rate is calculated pursuant to 28 U.S.C. Section 1961(a). The issue is post-petition interest on a pre-petition judgment which was affirmed in the BK. Question – use judgment interest rate or BK (federal interest)?