First United Security Bank v. Garner (In re Garner)

Citation:
1:10-cv-00795-WKW (11th Cir. 2011)
Tag(s):
Ruling:
The Eleventh Circuit Court of Appeals affirmed the District Court and Bankruptcy Court's holding that "an over secured creditor is only entitled to the contract rate of interest [on its allowed secured claim], pursuant to 11 U.S.C. §506(b), from the date of the filing until confirmation of the bankruptcy plan" in a chapter 13 case, where the debtor invokes the cram down provision of 11 U.S.C. §1325(a)(5)(B).
Procedural context:
The Eleventh Circuit Court of Appeals affirmed the District Court and the Bankruptcy Court's holding, over-ruling in part First United Security Bank's objection to confirmation of the debtor's chapter 13 plan. The issue on appeal was whether 11 U.S.C. §506(b), the provision that allows an over secured creditors to collect post-petition interest on its claim at the contract rate, is limited to the time period between the filing of the debtor’s bankruptcy case and confirmation, or whether Section 506(b) continues to apply post confirmation. The Eleventh Circuit affirmed the lower courts, holding that 11 U.S.C. §506(b) only applies from the date of filing through confirmation.
Facts:
In December 2008, the debtor executed a promissory note in favor of First United Security Bank (“FUSB”) in the principal amount of $33,848.14, plus interest at a rate of 10.5% per annum, to be paid over 30 months. The note was secured by various tractors, trucks, and motor vehicles owned by the debtor. On March 19, 2010, the debtor filed a chapter 13 bankruptcy case. As of the petition date, the debtor owed FUSB $26,849.10 on the note. In his chapter 13 plan, the debtor valued FUSB's collateral at $33,300.00, thereby designating FUSB as an over secured creditor. The debtor’s plan invoked the cram down provision of 11 U.S.C. §1325(a)(5)(B), and provided for payment of FUSB's claim at the reduced interest rate of 4.25% pursuant to Till v. SCS Credit Corp. (In re Till), 541 U.S. 465 (2004). FUSB objected to confirmation, arguing that debtor should be required to pay it the contract interest rate of 10.5% per annum, from the date of filing and post-confirmation, pursuant to 11 U.S.C. §506(b). The bankruptcy court sustained in part, and overruled in part, FUSB's objection, holding that the debtor must pay the contract rate of interest from the date of filing through confirmation. However, post-confirmation, the Till rate of interest of 4.25% would apply. The Eleventh Circuit affirmed, noting that if both Sections 506(b) and 1325(a)(5)(B) apply post-confirmation, an over secured creditor would receive a windfall, collecting “interest upon interest” that would exceed the present value of the claim under Section 1325(a)(5)(B).
Judge(s):
Dubina (Chief Judge), Cox (Circuit Judge), and Hunt (District Judge).

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