- Case Type:
- Case Status:
- 16-5717/5719 (6th Circuit, Feb 23,2017) Published
- A state law targeted at bankruptcy proceedings and not a law of general applicability is not “applicable non-bankruptcy law” when calculating interest on an over-secured tax claim under 11 U.S.C. § 511(a).
- Procedural context:
- The bankruptcy court held that the Tennessee statute that provided for charging 6% interest on top of the allowed 12% interest on an over-secured property tax claim violated the Supremacy Clause of the Constitution because it represented a penalty. Thus, the bankruptcy court limited the interest rate to 12%. Tennessee and Nashville appealed to the 6th Circuit BAP which affirmed the 12% interest rate but found that since the Tennessee statute was targeted to bankruptcy proceedings, it was not applicable non-bankruptcy law and thus, did not apply. In so ruling, the BAP avoided unnecessary adjudication of the constitutional issues raised by the parties. The 6th Circuit affirmed. Findings of fact were reviewed for clear error and legal conclusions were reviewed de novo.
- Debtor filed a chapter 13 plan which provided for paying $5,136.06 in unpaid property taxes to Nashville together with interest at the rate of 12%. Nashville claimed that the interest rate should be 18%. Under the Tennessee statute, a 6% penalty is added to the amount of tax due but, in the context of a bankruptcy proceeding, the penalty constitutes the assessment of interest. Tennessee’s legislature had revised that statute to add the bankruptcy related language after the Tennessee bankruptcy court had ruled that the penalty could not be collected. The plan was confirmed by agreement of the parties but the issue of the appropriate interest rate was reserved for determination by the bankruptcy court.
- Merritt, Moore, Stranch (Stranch)
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