PBCBA BAR BULLETINS pbcba_bulletin_november 2018 | Page 9

BANKRUPTCY C o r n e r Is a Chapter 13 Debtor Required to Pay Interest to Unsecured Creditors? CLE Audios available MP3 and CD format JASON S. RIGOLI In a recent opinion out of the United States Bankruptcy Court for the Southern District of Indiana, the Court decided the issue of whether, “11 U.S.C. § 1325(b)(1)(A) requires payment of interest on general unsecured claims where the Chapter 13 plan commits less than all of the Debtors’ projected disposable income to the plan.” In re McKinney, 2018 WL 4378655 at *1 (Bankr. S.D.Ind. Sept. 13, 2018). Section 1325(a)(4) requires that “the value, as of the effective date of the plan, of the property to be distributed under the plan” equal the amount that would be paid on the claim in a Chapter 7 case. Generally, Chapter 13 cases are filed so the debtor can keep non-exempt assets, essentially buying those assets by making the payments through the plan. Let us set up a hypothetical situation, where in The McKinney court recognized a split addition to the facts in McKinney, supra, the of opinions throughout the country on debtor also had non-exempt assets and the this issue. Id. at *1-2. The focus of the liquidation test equaled $100,000. courts coming down to a grammatical interpretation as to whether the phrase “as In this scenario if the debtor is proposing a of the effective date of the plan” modifies plan that pays the unsecured creditors 100% or defines the word “value” in subsection of their claim without interest, it would not (A) of the Section 1325(b)(1) or if that was appear to be in the best interest of creditors, simply when the court was to make its who, in a Chapter 7 liquidation, would be determination as to whether subsection (A) entitled to full payment of their claims plus or (B) applies to the case. Id. at *2. “payment of interest at the legal rate from the date of the filing of the petition,” before This issue arises where the debtor proposed any distribution could be made back to the to pay unsecured creditors 100% under the debtor. See 11 U.S.C. § 726(a)(5), (6). plan, however, there were only $17,116.96 of timely claims filed, the debtor proposed It remains unsettled whether a Chapter a 60-month plan of $850.00 for a total of 13 debtor must pay interest to unsecured $51,000.00 over the life of the plan, but the creditors under § 1325(b)(1)(B), but it is debtor had disposable income of $82,158.60 certainly something for debtor’s lawyers to over the same period. Id. at 1. Essentially, be aware of when the creditors or trustee the Debtor is keeping a surplus. involved are active. The McKinney court considered both views of construction of § 1325(b)(1). Ultimately, the court came down on the side of the courts that the phrase “as of the effective date of the plan” is when the court makes its decision about whether subsection (A) or (B) applies. Id. at *2. This article is submitted by Jason S. Rigoli, Esq., Furr Cohen, 2255 Glades Road, Suite 301E, Boca Raton, FL 33431, jrigoli@ furrcohen.com One thing not considered in McKinney, and potentially not raised, is whether such a plan that pays unsecured creditors 100% of their claims without interest, but not 100% of the disposable income is in the best interest of creditors. See 11 U.S.C. 1325(a)(4). PBCBA BAR BULLETIN 9 The PBC Bar Association offers CLE hours from the sale of MP3s and CDs recorded at previously held live seminars. We also offer course audio from Hillsborough, Orange, Clearwater and Dade County Bar Associations. If you are a current PBCBA member in good standing, you are entitled to order all courses at a reduced rate. Not yet a member or need to renew your membership? Please visit the Membership Application page on our website for more details: apps.palmbeachbar.org/join/ Specific courses available within each area of law listed below can be viewed on the following web page: cle. palmbeachbar.org: ADR Appellate Bankruptcy Civil Trial Commercial and Business Litigation Community Association Law Construction law Criminal Law Diversity Elder Law Estate and Probate Family Law (and more)