- Category: Judge Nugent
- Published on 15 May 2013
- Written by Judge Nugent
SIGNED this 1st day of May, 2013.
DESIGNATED FOR ON-LINE PUBLICATION
BUT NOT PRINT PUBLICATION
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
DAWN MARIE POWELL ) Case No. 12-12716
) Chapter 13
ORDER OVERRULING MID AMERICA CREDIT UNION’S OBJECTION TO
CONFIRMATION AND CONFIRMING DEBTOR’S CHAPTER 13 PLAN
Two preconditions to the confirmation of chapter 13 plans are that they be proposed in good
faith and that they pay secured creditors value that, as of the date of confirmation, will not be less
than the amount of the creditor’s allowed secured claim.1 If the debtor offers the creditor a stream
of payments, the payments must include a discount rate sufficient to allow recovery of the present
value of the claim amount. Whether the plan has been offered in good faith turns on a variety of
1 11 U.S.C. § 1325(a)(3) and (5).
Case 12-12716 Doc# 30 Filed 05/01/13 Page 1 of 15
factors concerning the debtor’s pre- and postpetition conduct, including the frequency of the debtor’s
previous filings and the debtor’s motivation and sincerity in offering what the plan proposes. Dawn
Powell filed this chapter 13 case 48 days after obtaining a purchase money car loan from Mid
America Credit Union and a little more than two years after successfully completing a previous
chapter 13 case. Her plan proposes that MACU’s 10.99 percent contract interest rate be reduced to
the “trustee’s rate” of 4.75 percent.2 MACU objects that the timing of her filing, combined with the
precipitous rate reduction, demonstrates her lack of good faith. It also complains that the interest rate
is insufficient under § 1325(a)(5)(B)(ii). Consideration of all of the circumstances surrounding
Powell’s filing shows that she proposed this plan in good faith and the proposed interest rate she
offers is legally sufficient under § 1325 on the facts in this record. Her plan should be confirmed.3
Plan confirmation is a contested, core proceeding over which this Court may exercise subject
Findings of Fact
Dawn Marie Powell is a single mother and a rookie schoolteacher. In 2005, and while she
was still married, she filed a joint chapter 13 case and completed the payments on her confirmed
2 Because MACU’s claim is a “910-car loan,” its treatment is subject to the hanging
paragraph, § 1325(a)(9)*, mandating that the amount of the debt, rather than the value of the
collateral, be paid.
3 A trial on confirmation of debtor’s plan was held in February, 2013. The debtor
appeared by her attorney Rick E. Hodge, Jr. Mid America Credit Union appeared by its attorney
Eric Bruce. The chapter 13 trustee Laurie B. Williams appeared in support of confirmation.
4 28 U.S.C. § 157(b)(2)(L) and (b)(1) and § 1334.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 2 of 15
plan even though she and her husband were divorced in 2006.5 Powell had (and lost) a series of jobs
during her prior case which, I note, spanned the financial collapse of 2008 and the resulting
recession in the Wichita-area’s economy that persists to this day. After she filed her 2005 case and
was divorced in 2006, she lost her health insurance and incurred more debt. In addition to her own
surgery during the prior chapter 13 case, she incurred debt for medical needs of her son, who suffers
from a heart condition. Some of those creditors sued and at least one medical provider, Wichita
Clinic, took a state court judgment against her in 2009. Powell received a discharge in the prior
chapter 13 in August, 2010. She completed her education thereafter and became a student teacher
in a local school district. At the time this case was heard, she had received her first teaching contract
and continued to teach in that same school district.
Powell needed a car. On August 11, 2012, she purchased one at Davis-Moore Mazda, signing
a Retail Installment Contract and Security Agreement (“Contract”) that the dealer then assigned to
MACU. She purchased a 2009 Mazda SUV for $17,578 and paid Davis-Moore an additional $2,499
for a service contract, financing the entire amount, plus dealer’s fees and a GAP insurance premium.
She put $500 down. For the first time, she was able to secure this loan without her mother’s cosignature.
The rate offered by MACU was 10.99 per cent for a 72-month period of repayment.6
When MACU was assigned the Contract, it also received Davis-Moore’s purchase money security
interest in the vehicle.
When Powell bought the car, Davis-Moore assisted her in securing financing by taking her
5 Case No. 05-16950.
6 Powell’s monthly car payments were $384 and according to her, were satisfactory for
her budget. Her first car payment was due September 25, 2012. Ex. 2.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 3 of 15
finance application and “shopping” the Contract to several local lending institutions so that they
could “bid” for her business by offering finance terms. MACU’s head loan officer testified and
referred to this process as a “reverse auction.” MACU apparently offered the most favorable terms
and Powell agreed to them. He said that vehicle lenders do not peg their offered rates to the New
York prime rate. He did not testify (and wasn’t asked) about how MACU sets its rates.
The MACU loan officer also testified that while Powell’s application did not disclose the
Wichita Clinic judgment, her Transunion credit report did. He stated that he was “aware of her
situation.” The credit report not only discloses the judgment, but also her 2005 bankruptcy filing as
well as a number of other debts she incurred after that filing.7 In any event, MACU “bid” on the
Contract and Powell accepted those terms.
Shortly after Powell bought the car and agreed to MACU’s terms of repayment, Wichita
Clinic garnished her pay at the school district, taking about $700; she had been employed with the
school district about one month when the wage garnishment hit.8 Powell realized that with the
garnishments she would not be able to make her car payments. With her memory refreshed
concerning the Clinic judgment, she then consulted counsel on September 11, 2012 and filed this
case on September 27, 2012. Powell is a below median income debtor and her plan provides for
monthly plan payments of $450 over 60 months.9
Because Powell obtained this car loan well-within 910 days of filing this case, her plan
7 Ex. 4.
8 According to the statement of financial affairs filed by Powell, the garnishment
occurred in September and was in the amount of $551. Ex. B. Wichita Clinic had not previously
garnished Powell’s wages between 2010 and 2012.
9 Ex. D.
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provides for MACU to be paid the entire amount of its claim as it must.10 It provides for MACU to
be paid over the five year plan term, but only at 4.75 per cent interest. That rate is known as the
“trustee’s rate” and represents a risk adjustment of 1.5 percentage points added to the prime rate of
3.25 percent. MACU says that because its car loan rates are not tied to the prime rate, but are the
product of a competitive market, it is entitled to receive a higher rate and, because Powell filed so
soon after taking the car loan, MACU believes it should receive its contract rate of 10.99 per cent.11
Apart from MACU’s claim, Powell’s plan provides for payment of her attorney’s fees but unsecured
creditors will receive no distribution under the plan.12 The chapter 13 trustee supports confirmation
of Powell’s plan. She indicated that the plan is feasible at the 4.75% rate, but not the 10.99%
contract rate sought by MACU.13 It satisfies the requirements for confirmation, it pays MACU’s
claim in full, the debtor is current on her plan payments, and the trustee’s rate complies with the
Supreme Court’s pronouncement in Till. 14
Burden of Proof
As the plan proponent, the debtor bears the burden of establishing that her plan complies
10 Dkt. 2. See § 1325(a)(9)* (The so-called “hanging paragraph” enacted by the
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, prohibits bifurcation of the
claim under § 506(a) and as a result, the entire debt is treated as an allowed secured claim under
11 Dkt. 14.
12 Ex. D. The unsecured claims total $60,363, of which approximately one-half is
comprised of nondischargeable student loan debt. See Ex. F and Bankruptcy Schedule F.
13 See Ex. F and G, comparing the trustee’s plan projections at the 4.75% and 10.99%
14 Till v. SCS Credit Corp., 541 U.S. 465, 124 S. Ct. 1951, 158 L. Ed. 2d 787 (2004).
Case 12-12716 Doc# 30 Filed 05/01/13 Page 5 of 15
with the statutory requirements for confirmation.15
Filing chapter 13 shortly after obtaining a 910-car loan is not per se lack
of good faith that bars confirmation under § 1325(a)(3).
Courts in this Circuit look to a multitude of circumstances in examining whether a debtor
lacked good faith in proposing a plan. Section 1325(a)(3) states that the plan may be confirmed if
it was proposed in good faith and not by any illegal means. The Tenth Circuit long ago set out its
eleven-factor test for lack of good faith under this subsection in Flygare v. Boulden, a test that
remains good law today.16 The factors to be considered include –
(1) the amount of proposed payments and the amount of the debtor's surplus; (2) the
debtor's employment history, ability to earn and likelihood of future increases in
income; (3) the probable or expected duration of the plan; (4) the accuracy of the
plan's statements of the debts, expenses and percentage repayment of unsecured debt
and whether any inaccuracies are an attempt to mislead the court; (5) the extent of
preferential treatment between classes of creditors; (6) the extent to which secured
claims are modified; (7) the type of debt sought to be discharged and whether any
such debt is non-dischargeable in Chapter 7; (8) the existence of special
circumstances such as inordinate medical expenses; (9) the frequency with which the
debtor has sought relief under the Bankruptcy Reform Act; (10) the motivation and
sincerity of the debtor in seeking Chapter 13 relief; and (11) the burden which the
plan's administration would place upon the trustee.17
But “the weight given each factor will necessarily vary with the facts and circumstances of each
15 In re Alexander, 363 B.R. 917, 922 (10th Cir. BAP 2007) (citing In re Davis, 239 B.R.
573, 577 (10th Cir. BAP 1999)); Keith M. Lundin & William H. Brown, CHAPTER 13
BANKRUPTCY,4TH EDITION, § 217.1, SEC.REV. June 7, 2004, www.Ch13online.com.
16 Flygare v. Boulden, 709 F.2d 1344 (10th Cir. 1983).
17 Id. at 1347-48 (quoting In re Estus, 695 F.2d 311, 317 (8th Cir. 1982)) [Emphasis
18 Id. at 1348.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 6 of 15
The Flygare factors that matter most in this case are Powell’s multiple filings and her
motivation and sincerity. Nothing before me suggests that she filed a second case for any purpose
other than to stop the garnishment of her wages. While she appears to have run up considerable debt
since 2005, that could be explained to some extent by her divorce-caused loss of health insurance
(not an unfamiliar story in this court), her child’s serious illness, her cost of obtaining a teaching
degree, and her sporadic employment over the life of her first plan. That she completed the plan and
obtained a discharge in the 2005 case is to her credit and should not count against her in this case.
Likewise, Powell appeared to be a sincere debtor who is trying hard to put her life in order. Since
filing in 2005, she has become a teacher who is employed full-time. She is a single mother. That she
filed this case to stop a wage garnishment on a dischargeable debt can hardly be held against her.
As for MACU’s objection that Powell’s proposing to effectively reduce her car loan interest
rate by 7.24 per cent evidences her bad faith, there is little authority to support that. As will be
further discussed below, the rate she proposed is the standard rate for chapter 13 cases in this District
and is rarely, if ever contested. That rate is based on the Supreme Court’s plurality opinion in Till
v. SCS Credit in which four justices concurred that the prime rate, adjusted for risk, is the
appropriate way to determine what discount rate debtors should pay in order to satisfy the “value,
as of the effective date of the plan” requirement contained in § 1325(a)(5).19 One cannot fault the
debtor here for proposing to repay her loan at the Till rate.
In some 910-car loan cases, the appropriate interest rate to be paid on the allowed claim has
19 This reference to value incorporates the principle of the time value of money,
requiring payments that incorporate an interest rate to account for the fact that a dollar paid
today is worth more than a dollar paid tomorrow. See Drive Financial Services, L.P. v. Jordan,
521 F.3d 343 (5th Cir. 2008), citing Till, 124 S. Ct. at 1966.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 7 of 15
crept into the good faith analysis. In In re Blackmon, the bankruptcy court concluded that in two
separate cases, debtors’ plans were not proposed in good faith where they filed bankruptcy within
79 and 75 days of purchasing vehicles financed at 19.95% and 11.65% respectively, and proposed
to pay interest on the car claims at 5.25%.20 In both cases, evidence was presented and the court
found that debtors were contemplating bankruptcy at the time they purchased and financed their
cars.21 The bankruptcy court emphasized the factors of debtors’ motivation and sincerity in seeking
chapter 13 relief and the circumstances under which they contracted the debts. It concluded that
debtors’ plans, which proposed to pay less than the negotiated contract interest rates, were not
“fundamentally fair” to the creditors, and denied confirmation for lack of good faith.22
Other cases, including In re Marshall, conclude that it is not bad faith per se, to purchase and
finance a vehicle 40 days before bankruptcy, fail to make any prepetition payments, and propose to
reduce the interest rate from the contract rate of 24.95% to 10.25%.23 The car creditor argued that
debtors’ motivation in filing bankruptcy was for “welching” on the financing agreement and
“cramming a low interest rate down the creditor’s throat” and they did not otherwise need
bankruptcy relief.24 The bankruptcy court rejected the creditor’s focus on “doing equity” and the
prebankruptcy dealings between it and the debtors:
20 459 B.R. 144 (Bankr. S.D. Fla. 2011).
21 In one of the cases, debtor met with and made a partial payment of fees to bankruptcy
counsel before he purchased the vehicle. In the other, the debtor owed nearly $270,000 in
unsecured debt and had a foreclosure judgment entered against him when he purchased his
vehicle. 459 B.R. at 146.
22 459 B.R. at 147.
23 2007 WL 1725196 (Bankr. C.D. Ill. 2007).
24 Id. at *1.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 8 of 15
The present value requirement of Section 1325(a)(5)(B)(ii) is applied as dictated by
Till [full cite omitted]. It is intended to compensate secured creditors for the delay
in payments, in recognition of the fundamental economic principle that money paid
tomorrow is worth less than if paid today. The equities of the case have no role to
play in the interest rate calculation. Who mistreated whom is simply not relevant.25
The bankruptcy court also noted that the predominant purpose of the bankruptcy filing was not to
deal with the car debt. Rather, debtors filed chapter 13 to save their house (addressing a $144,000
mortgage with an arrearage and tax delinquency) and deal with unsecured debt that was twice the
amount owed on the car loan. The court denied the car creditor’s objection to cramdown of the
interest rate and confirmed the plan.26
In the current case, there is no evidence that debtor was contemplating filing bankruptcy at
the time she purchased her car. Here, debtor’s motivation in filing bankruptcy was to stop a
judgment creditor’s wage garnishment, a judgment creditor that MACU was well aware of when it
extended the credit to debtor.27 That garnishment occurred after debtor purchased the vehicle and
debtor knew that she would not be able to make the car payments if she were subjected to
garnishments. In addition, there was no evidence that bankruptcy was filed for the sole purpose of
25 Id. at *2.
26 See also, In re Johnson, 438 B.R. 854 (Bankr. D. S.C. 2010) (under totality of
circumstances, filing of bankruptcy after purchase of 910-vehicle was not bad faith; bankruptcy
filing was motivated by need to address tax debt and debtor was not engaged in extravagant
lifestyle); In re Melton, 2010 WL 5128631 (Bankr. D. S.C. 2010) (The fact that debtor purchased
a used BMW with significant mileage shortly before filing bankruptcy is not dispositive of the
issue of bad faith; other circumstances were present, however, which debtor did not satisfactorily
explain to satisfy her burden of proving that the plan was proposed in good faith.); In re
Robinson, 2008 WL 2095349 (Bankr. D. Kan. 2008) (It is not bad faith per se for debtor to allow
dismissal of bankruptcy case and then refile after the 910-day period has passed, avoiding the
application of the hanging paragraph and enabling debtor to bifurcate the car claim).
27 Powell’s Schedule F discloses that the Wichita Clinic judgment was approximately
Case 12-12716 Doc# 30 Filed 05/01/13 Page 9 of 15
avoiding the contract rate of interest. In any event, the hanging paragraph only prohibits bifurcation
of a 910-car loan claim under § 506. It does not prohibit cramdown or modification of the contract
terms of a 910-car loan.28
The applicable rate of interest in this case is the Till rate; Till makes
clear that contract, cost of money or other similar standards do not
apply to § 1325.
In 2004, the United States Supreme Court entered the interest rate discussion with Till v. SCS
Credit Corp. 29 In a split decision, the high court held that a secured creditor in a Chapter 13 case
was entitled to receive a discount rate equal to the national prime rate plus a risk adjustment – a
formula-based approach. Till was a chapter 13 case, making its reasoning applicable here. In Till,
three justices joined Justice Stevens’ opinion that rejected the use of “coerced loan, presumptive
contract rate, and cost of funds approaches.”30 Concluding that each of these approaches “is
complicated, imposes significant evidentiary costs, and aims to make each individual creditor whole
rather than to ensure the debtor’s payments have the required present value,”31 Justice Stevens
28 Indeed, modification of the repayment terms is expressly permitted by the Code. See §
1322(b)(2); In re Velez, 431 B.R. 567 (Bankr. S.D.N.Y. 2010) (hanging paragraph does not
prohibit modification of interest rate on 910-car loan from 24.99% to 5.75%.); In re Johnson,
337 B.R. 269 (Bankr. M.D.N.C. 2006) (Even if bifurcation of 910-car claim is prohibited, a plan
may still modify the term of the loan and interest rate); In re Robinson, 338 B.R. 70 (Bankr.
W.D. Mo. 2006) (debtor not required to pay the contract interest rate on 910-car loan); In re
Brill, 350 B.R. 853 (Bankr. E.D. Wis. 2006) (Till is appropriate interest rate to satisfy present
value requirement of § 1325(a)(5)(B)(ii), not the contract rate); In re Bufford, 343 B.R. 827
(Bankr. N.D. Tex. 2006) (hanging paragraph does not alter the present value requirement of §
1325(a)(5)(B)(ii) or the ability to modify a 910-car creditor’s contractual rights under §
1322(b)(2)); In re Vandernick, 2008 WL 901685 at *4 (Bankr. N.D. W. Va. 2008) (hanging
paragraph does not prohibit modification of interest rate).
29 541 U.S. 465, 124 S. Ct. 1951, 158 L.Ed. 2d 787 (2004).
30 541 U.S. at 477.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 10 of 15
preferred beginning with the national prime rate that is widely reported and enhancing it with a risk
factor. His opinion noted that the prime rate reflects the financial market’s estimate of what a
commercial bank should charge a creditworthy borrower to compensate for opportunity costs,
inflation risk, and a slight risk of default.32 Debtors posing a greater default risk should pay a higher
rate that is adjusted for “the circumstances of the estate, the nature of the security, and the duration
and feasibility of the reorganization plan.”33 The four justices stated that unlike the other
approaches, “the formula approach entails a straightforward, familiar, and objective inquiry” that
“depends only on the state of financial markets, the circumstances of the bankruptcy estate, and the
characteristics of the loan, not on the creditor’s circumstances or its prior interactions with the
debtor.”34 A fifth justice, Justice Thomas, concurred in the judgment. In a separate opinion, he
questioned whether there was any statutory justification for any risk adjustment, but he concluded
that because the rate allowed by the four-justice plurality opinion was higher than the risk-free prime
rate, the creditor was receiving the requisite present value to satisfy § 1325(a)(5).35
After enactment of BAPCPA in 2005 and its new treatment of 910-car loans, the question
arose whether Till’s “prime-plus” interest rate continues to apply to 910-car loans or whether the
contract rate of interest applied.36 Many bankruptcy courts have concluded that the Till formulation
32Id. at 479.
35Id. at 490-91.
36 Courts have applied Till in cases where the contract rate of interest on the 910-car loan
is less than the market prime rate, resulting in the Till rate of interest being more than the
contract rate. See e.g., In re Taranto, 365 B.R. 85 (6th Cir. BAP 2007) (Court held that Till rate of
interest would govern even though the contract proposed a 0% interest rate; case remanded for
Case 12-12716 Doc# 30 Filed 05/01/13 Page 11 of 15
remains applicable in chapter 13 cases filed post-BAPCPA.37
MACU’s arguments regarding the proposed interest rate are based on two assertions: first,
that car loan rates are related to an auction-like market and not the prime rate; and second, that the
risk adjustment included in the current trustee’s rate does not sufficiently protect the credit union
in this case. The first argument ignores Till’s holding that a determination of the appropriate rate
under § 1325(a)(5) involves the straightforward inquiry based on the financial markets, the estate’s
circumstances, and the loan’s characteristics instead of the lender’s “circumstances or its prior
interactions with the debtor.”38 MACU’s contract rate was determined by the reverse auction that
its witness described and is part of the “prior interactions” or lender’s circumstances that Till tells
us to disregard in favor of the conditions of the financial marketplace.
determination of Till rate); In re Brill, 350 B.R. 853 (Bankr. E.D. Wis. 2006) (Till rate of interest
applies in cases where contract rate of interest is below prime; contract rate of interest was 0%);
In re Scruggs, 342 B.R. 571 (Bankr. E.D. Ark. 2006) (same).
37 See e.g. In re Murray, 352 B.R. 340 (Bankr. M.D. Ga. 2006) (BAPCPA hanging
paragraph’s anti-bifurcation provision did not affect continued applicability of Till to satisfy the
present value requirement of § 1325(a)(5).); In re Robinson, 338 B.R. 70 (Bankr. W.D. Mo.
2006) (BAPCPA amendments did not mention interest rates or overrule Till; creditor’s
entitlement to receive full “value” of their claim under § 1325(a)(5) does not require payment of
contract rate of interest); In re Lilly, 378 B.R. 232 (Bankr. C.D. Ill. 2007) (Till’s prime plus risk
approach remains applicable following enactment of BAPCPA); In re Vagi, 315 B.R. 881
(Bankr. N.D. Ohio 2006) (Till’s formula approach continues to apply to 910 claims; hanging
paragraph did not address rate of interest to which creditor is entitled and did not prevent
modification of contract interest); In re Soards, 344 B.R. 829 (Bankr. W. D. Ky. 2006) (Till
analysis remains valid post-enactment of BAPCPA); In re Brown, 346 B.R. 246 (Bankr. M.D.
Ga. 2006) (No provision of BAPCPA prohibits the modification of secured creditors’ rights
under § 1322(b)(2); BAPCPA did not abrogate Till). The Fifth Circuit Court of Appeals has also
weighed in on the applicability of Till post-BAPCPA and concluded that its prime-plus approach
applies in chapter 13 cases filed after enactment of BAPCPA. See Drive Financial Services, L.P.
v. Jordan, 521 F.3d 343, 348 (5th Cir. 2008) (Hanging paragraph and BAPCPA did not supercede
38 Till, 541 U.S. at 479.
Case 12-12716 Doc# 30 Filed 05/01/13 Page 12 of 15
MACU’s second argument, that the 1.5% risk adjustment does not sufficiently reflect the risk
that Powell’s loan will not be repaid, is less easily dismissed. While the Till plurality considered that
a risk adjustment between one and three percentage points would likely be a sufficient range, it is
not clear from the opinion that a risk adjustment can never exceed three points. Indeed, some
bankruptcy courts have held as much.39 Instead, Till supplies us with guideposts for determining how
to monetize the risk to secured creditors that is inherent in chapter 13 plans. The first one is the
prime rate which is widely reported and easily ascertained and reflects what a creditworthy
commercial borrower might pay a commercial lender “to compensate for the opportunity costs of
the loan, the risk of inflation, and the relatively slight risk of default.” The second guidepost is the
risk adjustment that recognizes the fact that a chapter 13 debtor likely poses a greater risk than a
creditworthy commercial borrower, allowing the bankruptcy court to adjust the rate upward in
consideration of the nature of the security, the circumstances of the estate, the duration of the plan
and its feasibility. Bankruptcy courts must therefore carefully tread the border between
compensating the creditor for its risk and pricing the debtor out of her plan.40
MACU provided no evidence of what the appropriate risk rate is and relies only on its
assertion that the contract rate adequately liquidates it while the Trustee’s rate does not, leaving me
39 See In re Horny, 2011 WL 6643074 at *1 (E.D. Mich. 2011) (upholding an agreed-to
interest rate of 15.2 percent between debtor and creditor, a risk factor of nearly 12% over prime;
holding that Till does not proscribe a risk factor higher than 3 percent over prime, if such a rate is
necessary to account for the risk of nonpayment and is not too high for the plan to succeed); In
re Burt, 2008 WL 4365894 (Bankr. N.D. Miss. 2008) (adding a 4.25% risk factor to 5.25%
40 See Till, 541 U.S. at 480 (secured creditor is entitled to be compensated for the risk
factor unless it is so high as to “doom the plan.”).
Case 12-12716 Doc# 30 Filed 05/01/13 Page 13 of 15
little with which to work.41 The debtor has recently completed a first chapter 13 case and obtained
a discharge. During that case, she accumulated substantial new debt and filed very shortly after
receiving this car loan because one of those creditors had taken a judgment about which she forgot.
She is a new employee and potentially at higher risk of dismissal due to her lack of seniority. All
of these facts, including her prior bankruptcy, potentially enhance MACU’s risk and were known
to it when it made the loan.
But, increasing her risk rate add-on would likely jeopardize Powell’s ability to complete her
plan. She is a below-median debtor whose projected disposable income is predicated on what she
discloses on schedules I and J. Those schedules indicate that her monthly surplus is $428. By law,
her applicable commitment period is three years, yet she proposes to pay for five years. Her
proposed payments are $450. Based upon the plan calculations offered in evidence by the Trustee,
it does not appear that she can afford to pay any more. Increasing the risk adjustment would likely
doom the plan to failure.
MACU’s interest in the collateral appears to be well-protected. Consider that it agreed
prepetition to finance an already three-year-old vehicle until July of 2018 for only $500 down. But
under Powell’s plan, the car will be paid for not later than September of 2017 when the plan ends,
ten months sooner. MACU may lose some yield, but that is part of its contractual right to the benefit
41 See Till, 541 U.S. at 479, 484-85 (the creditor, as the more knowledgeable party, bears
the evidentiary burden to support a higher risk factor); In re Bivens, 317 B.R. 755 (Bankr. N.D.
Ill. 2004) (creditor failed to satisfy its burden of showing that risk factor added to prime rate was
inadequate to compensate creditor for risk of debtor’s default under her chapter 13 plan); In re
Johnson, 438 B.R. 854, 859 (Bankr. D. S.C. 2010) (risk factor adjustment referenced in Till is
the risk that the chapter 13 plan will not succeed and is not the same risk of nonpayment as
creditworthiness factors taken into account in the lending decision).
Case 12-12716 Doc# 30 Filed 05/01/13 Page 14 of 15
of its pre-bankruptcy bargain, one that is not entitled to adequate protection.42 And, if deterioration
of the collateral is a concern (which seems unlikely), MACU has already financed a $2,499 warranty
that, at least according to those who sell them, should protect Powell’s “investment” in the vehicle.
Thus, considering the nature of the security, Ms. Powell’s estate’s circumstances, the length
of her plan, and its feasibility, the proposed stream of payments at the Trustee’s rate is sufficient to
return to MACU the value of its allowed secured claim in this case. MACU’s objections should be
OVERRULED and Dawn Powell’s plan CONFIRMED. The Trustee will submit the appropriate
order on confirmation.
# # #
42 United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd. 484 U.S. 365
(1988) (undersecured creditor not entitled to interest on its collateral as compensation for delay
in foreclosing on collateral caused by automatic stay).
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