Thomas McDonald, Jr. v. Tamara Chambers

• Court: Court of Appeals for the Sixth Circuit
• Decided: January 12, 2021
• Docket: 20-1376
• Status: Unpublished

Opinion

NOT RECOMMENDED FOR PUBLICATION File Name: 21a0024n.06

No. 20-1376

UNITED STATES COURT OF APPEALS FOR THE SIXTH CIRCUIT

In re: TAMARA CHAMBERS, ) FILED ) Jan 12, 2021 Debtor, DEBORAH S. HUNT, Clerk __________________________________________ ) ) THOMAS W. MCDONALD, JR., Trustee, ) Appellant, ) ON APPEAL FROM THE ) UNITED STATES DISTRICT v. ) COURT FOR THE EASTERN ) DISTRICT OF MICHIGAN TAMARA CHAMBERS; DORT FEDERAL ) CREDIT UNION, ) ) Appellees. )

BEFORE: SUHRHEINRICH, McKEAGUE, and READLER, Circuit Judges.

CHAD A. READLER, Circuit Judge. Chapter 13 of the Bankruptcy Code affords an

individual debtor with a regular income stream the opportunity to resolve her debts through a

structured repayment plan. Facing mounting debt, Tamara Chambers availed herself of that

opportunity. Among her outstanding obligations was a $13,000 car loan financed by Dort Federal

Credit Union (DFCU). As part of Chambers’s confirmed repayment plan, the bankruptcy court

permitted Chambers to repay the loan directly to DFCU at the 15% interest rate included in the

original loan agreement.

The Trustee challenges that arrangement in two respects. One, the Trustee argues that

utilizing the original interest rate violates the “prime-plus” formula for interest calculations

adopted in Till v. SCS Credit Corp., 541 U.S. 465, 480 (2004). Till, however, is inapplicable when

a debtor’s Chapter 13 plan proposes to pay a creditor in accordance with the terms of the original No. 20-1376, In re Chambers

contract. Two, the Trustee contends that allowing Chambers to make direct payments to DFCU

violates the bankruptcy code and a local bankruptcy rule. But the Trustee failed adequately to

make that objection to Chambers’s plan before the bankruptcy court. We thus affirm the district

court, which itself affirmed the Bankruptcy Court’s Confirmation Order. See Grant, Konvalinka

& Harrison, PC v. Banks (In re McKenzie), 716 F.3d 404, 411 (6th Cir. 2013) (explaining that in

an appeal from a district court’s judgment reviewing a bankruptcy court’s decision, “we review

the bankruptcy court’s orders directly”).

I.

Before a bankruptcy court may confirm a Chapter 13 debtor’s repayment plan, it must

conclude that the plan complies with the requirements listed in 11 U.S.C. § 1325(a). See Shaw v.

Aurgroup Fin. Credit Union, 552 F.3d 447, 449, 457–58 (6th Cir. 2009). Those considerations

range from ensuring that the plan was “proposed in good faith,” 11 U.S.C. § 1325(a)(3), and

complies “with the provisions of this chapter,” 11 U.S.C. § 1325(a)(1), to ensuring that the debtor

has “filed all applicable Federal, State, and local tax returns,” 11 U.S.C. § 1325(a)(9).

Relevant here are two other requirements in § 1325(a), which together address how the

claims of secured creditors are to be resolved in a debtor’s repayment plan. One governs the

specific treatment of each “secured claim provided for by the plan,” 11 U.S.C. § 1325(a)(5), the

other more broadly requires the debtor to “be able to make all payments under the plan and to

comply with the plan,” 11 U.S.C. § 1325(a)(6). Where the payments under a debtor’s plan include

the repayment of secured debt, § 1325(a)(5) requires the debtor to (1) obtain “the creditor’s

acceptance of the plan”; (2) surrender “the property securing the claim”; or (3) provide “the

creditor both a lien securing the claim and a promise of future property distributions (such as

deferred cash payments) whose total ‘value, as of the effective date of the plan, . . . is not less than

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the allowed amount of such claim.’” Till, 541 U.S. at 468 (citing 11 U.S.C. § 1325(a)(5)(A)-(C)).

At issue here is the third option, one that has come to be known in bankruptcy circles as a “cram

down,” as it can be enforced even without the claim holder’s consent. Id. at 468–69; see also

Assocs. Com. Corp. v. Rash, 520 U.S. 953, 957 (1997) (noting the term “cram down” refers to a

confirmation of a Chapter 13 plan over the objection of the creditor). A Chapter 13 cram down

occurs when an individual debtor, over a creditor’s objection, proposes a plan by which the

encumbered property would be retained by the debtor and the secured creditor’s rights modified

by changing one or more previously agreed to contract terms. See 11 U.S.C. § 1325(a)(5)(B); Till,

541 U.S. at 476. Those modifications, while unilateral, nonetheless bind the creditor. See, e.g.,

In re Pryor, 341 B.R. 648, 651 (Bankr. C.D. Ill. 2006) (“Any plan that modifies a secured creditor’s

rights over the creditor’s objection is a cram down . . . .”); DaimlerChrysler Servs. N. Am. LLC v.

Taranto (In re Taranto), 365 B.R. 85, 90 (B.A.P. 6th Cir. 2007) (holding that a debtor’s plan to

accelerate payments and pay the contract rate of interest constitutes a cram down).

A. One item that the debtor does not unilaterally control in a cram down scenario is the

applicable interest rate on future installment payments. In the case of a cram down, the applicable

interest rate is governed by the “prime-plus” formula adopted in Till. See In re Taranto, 365 B.R.

at 90–91. In a nutshell, the prime-plus formula serves to compensate creditors for the time value

of their money and the risk of default. Till, 541 U.S. at 474–77. As instructed by Till, the

bankruptcy court is obligated to select an interest rate “high enough to compensate the creditor for

its risk but not so high as to doom the plan.” Id. at 480. In other words, while the debtor may

unilaterally propose an interest rate in her Chapter 13 plan, if the creditor fails to accept the

proposal, the interest rate is governed by the prime-plus formula. Id. at 480–81.

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Invoking Till, the Trustee contends that the prime-plus formula should have applied to the

interest rate calculations for Chambers’s repayment plan for its secured debt owed to DFCU. But

the elements of a cram down are absent, rendering the Till formula inapplicable. Far from

modifying the original contract terms, Chambers proposed to pay DFCU in accordance with those

terms, without any modifications. Nor did DFCU ultimately object to Chambers’s proposal.

Although DFCU did initially object to confirmation, it did so on the grounds that insurance

coverage was lacking, a dispute that was resolved before the confirmation hearing, with DFCU

ultimately accepting the plan. Shaw, 552 F.3d at 457; see also In re Taranto, 365 B.R. at 90–91

(noting if a debtor’s proposed plan to pay the secured creditor was without modification and

according to the contract terms, no cram down would occur). In the absence of a cram down, the

Till interest rate is not applicable. See Shaw, 522 F.3d. at 457 (holding that a creditor’s acceptance

of a Chapter 13 plan “need not meet the requirements set forth in § 1325(a)(5)(B), including the

present-value requirement”); see also In re Taranto, 365 B.R. at 90–91.

Instead, the bankruptcy code required the bankruptcy court to consider, among other things,

whether Chambers would be able to comply with and make all payments under the plan and to

ensure that the plan did not unfairly discriminate against any class of creditors. See 11 U.S.C.

§§ 1322(a)(3), 1325(a)(6). Should a bankruptcy court have doubts on those fronts, it may modify

the rights of the secured creditors, for instance by setting a new interest rate under the plan. See

11 U.S.C. § 1322(b)(2); see also Till, 541 U.S. at 475 (“Chapter 13 expressly authorizes a

bankruptcy court to modify the rights of any creditor whose claim is secured by an interest in

anything other than ‘real property that is the debtor’s principal residence.’” (quoting 11 U.S.C.

§ 1322(b)(2))). Here, the bankruptcy court, in reviewing the Chapter 13 plan, did not raise any

concerns as to Chambers’s ability to pay or comply with the plan, noting, among other

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considerations, that Chambers was current in her vehicle payments. We thus see no reason to

believe the bankruptcy court erred in concluding that the plan satisfied the requirements of

§ 1325(a).

B. The Trustee also challenges the bankruptcy court’s decision to permit Chambers to

make direct payments to DFCU, rather than make those payments through the Trustee. By way

of background, § 1326(c) sets a presumption that Chapter 13 plan payments should be made

through the trustee. 11 U.S.C. § 1326(c) (“Except as otherwise provided in the plan or in the order

confirming the plan, the trustee shall make payments to creditors under the plan.”). Bankruptcy

courts, however, may permit debtors to make payments directly to their creditors, provided the

plan meets the confirmation requirements of § 1325(a). See 11 U.S.C. § 1326(c) (“Except as

otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments

to creditors under the plan.” (emphasis added)); Giesbrecht v. Fitzgerald (In re Giesbrecht), 429

B.R. 682, 690 (B.A.P. 9th Cir. 2010) (“[B]ankruptcy courts have been afforded the discretion to

make the determination of when direct payments may or may not be appropriate based upon the

confirmation requirements of § 1325, policy reasons, and the factors set forth by case law, local

rules or guidelines.”). Local bankruptcy court rules, we note, supplement these statutory

directives, allowing some payments to be made directly to the creditor, subject to “[a]ny timely

objection.” See Bankr. E.D. Mich. R. 3070-1.

In Chambers’s Chapter 13 bankruptcy proceeding, however, the Trustee failed to object

timely to the direct payment provision. True, as the Trustee notes, it did object to the payment to

DFCU in its written objections and at the confirmation hearing. But those objections were

exclusively tied to whether Chambers’s payments violate the Till interest rate. The Trustee did

not clearly articulate an objection to Chambers’s direct payments to DFCU independent of his

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objection to the Till interest rate. And with the Trustee having failed to preserve the argument, we

will not take it up on appeal. See New Prods. Corp. v. Dickinson Wright, PLLC (In re Modern

Plastics Corp.), 890 F.3d 244, 253 (6th Cir. 2018) (explaining that arguments not raised before the

bankruptcy court are deemed forfeited on appeal).

II.

For the foregoing reasons, we affirm.

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