Stephany Yvonne Dimery

OCR transcription for search; preserved printed pages are authoritative

The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below.

Russ Kendig
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO

EASTERN DIVISION

In re: )
) CHAPTER 13

STEPHANY YVONNE DIMERY, )
) CASE NO. 11-60142
)

Debtors. ) JUDGE RUSS KENDIG

)
) MEMORANDUM OF OPINION
) (NOT FOR PUBLICATION)
)

On March 31, 2011, debtor filed an objection to claim 2-1, filed by Auto Acceptance
Corporation. The objection is now before the court.

The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the
general order of reference entered in this district on July 16, 1984. This is a core proceeding

under 28 U.S.C. § 157(b)(2)(A), (B) and (0).

This opinion is not intended for publication or citation. The availability of this opinion, in
electronic or printed form, is not the result of a direct submission by the court.

BACKGROUND

Debtor’s objection seeks to lower the interest rate on her 2008 Chrysler Sebring from
23.49% to 4.25%. Schedule D lists the vehicle as worth $10,000 and notes that the vehicle has
“some damage.” According to claim 2-1, the vehicle is subject to a $4,814.96 lien. No response
to the objection to claim was filed. However, the court informed debtor’s counsel by Email that

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the court would not approve an interest rate less than 5.25% unless he provided legal authority to
support the lower rate.

On May 5, 2011, debtor filed a memorandum of supplemental authority. The
memorandum argues that the 4.25% interest rate is mandated by the “coerced loan approach”
approved of by this court in In re Cook, 322 B.R. 336 (Bankr. N.D. Ohio 2005). In the
alternative, debtor argues that a rate of 4.25% in mandated by the “formula approach” endorsed
by a plurality of the Supreme Court in Till v. SCS Credit Corp., 541 U.S. 465 (2004).

LAW AND ANALYSIS

Pursuant to 11 U.S.C. § 1325(a)(5)(B)(ii), a secured claimant in a chapter 13 plan is
entitled to receive a distribution of property not less than the value of its allowed claim. Courts
have universally agreed that the value of a secured creditor’s claim includes the right to receive
interest because of the time value of money and, in the view of some courts, the risk of
nonpayment. See Cook, 322 B.R. at 339. However, at least prior to Till, the method for
calculating the rate of interest to which a secured creditor is entitled (often called the
“cramdown” interest rate) was more controversial.

Prior to Till, the circuit courts fashioned divergent approaches to calculating cramdown
interest rates, including the “coerced loan,” “presumptive contract rate” and “cost of funds”
approaches. Till, 541 U.S. at 477. The Sixth Circuit Court of Appeals endorsed the coerced loan

approach. Under the coerced loan approach,

in the absence of special circumstances bankruptcy courts should use the
current market rate of interest used for similar loans in the region. Bankruptcy
courts are generally familiar with the current conventional rates on various
types of consumer loans. And where parties dispute the question, proof can

easily be adduced.

In re Kidd, 315 F.3d 671, 675 (6th Cir. 2003) (internal citation omitted). Thus, in the case of a
vehicle, the cramdown interest rate would be the local market rate available on a vehicle of the

same year to a good-credit customer. See Id. at 677.

In Till, a four-Justice plurality of the Supreme Court endorsed the so-called “formula
approach.” Under the formula approach, a court must take the national prime rate and add a risk-
adjustment factor. Till, 541 U.S. at 478-80. The court did not decide the method for determining
the risk adjustment fact but noted with approval that courts typically apply upward adjustments
of 1% to 3%. Id. at 480. The plurality selected the formula approach over competing approaches
because it “entails a straightforward, familiar, and objective inquiry, and minimizes the need for
potentially costly additional evidentiary proceedings.” Id. at 479.

Justice Thomas filed a concurring opinion in which he opined that a creditor is entitled to

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an interest rate reflecting no risk whatsoever. Id. at 489. He reasoned that the text of section
1325(a)(5)(B)(ii) requires a only a valuation of the property to be distributed, not the value of the
debtor’s promise to pay. Id, at 485-86. Justice Thomas concurred only because the debtor, by
offering more than the prime rate, was paying more than required. Id. at 491.

This court decided Cook in the immediate aftermath of Till. In Cook, the debtor’s assets
exceeded his liabilities. Cook, 322 B.R. at 338. The legal issue was the rate of interest that
should be paid to unsecured creditors. Id. Thus, Cook called on the court to interpret section
1325(a)(4) as opposed to section 1325(a)(5)(B)(i). Id. at 340. However, because both
subsections contain the same operative language entitling creditors to at least “the value, as of the
effective date of the plan, of property to be distributed under the plan,” the same method for
determination of a cramdown interest rate must apply in both cases. Id. at 344-45.

In Cook, this court considered whether Till was precedential. This court observed that
when the Supreme Court issues a fractured opinion, the “narrowest grounds” approach
determines the degree to which the holding is precedential. “When a fragmented Court decides a
case and no single rational explaining the result enjoys the assent of five Justices, the holding of
the Court may be viewed as that position taken by those Members who concurred in the
judgments on the narrowest grounds.” Cook, 322 B.R. at 341 (citing Marks v. United States, 430
U.S. 188, 193 (1977)) (internal quotes omitted). The court concluded that the reasoning of the
plurality opinion and Justice Thomas’s concurrence contained no common ground. This is
underscored by the explicit rejection of Justice Thomas’s approach in the text of the plurality
opinion. Id. at 343. Therefore, the court looked to Sixth Circuit precedent and applied the coerced

loan approach to determine the applicable interest rate. Id. at 345.

Since Cook was decided, the Sixth Circuit Court of Appeals has indicated in dicta that
bankruptcy courts should follow Till when determining interest rates in chapter 13 plans. Bank of
Montreal v. Official Comm. of Unsecured Creditors (In re Am. Homepatient, Inc.), 420 F.3d 559,
566-68 (6th Cir. 2005). In American Homepatient, the court considered the applicability of the
formula approach to cramdown interest rates in Chapter 11 bankruptcy. The court concluded that
strict application of the formula approach is not appropriate in chapter 11 cramdowns. Id. at 568.
However, in dicta, the court stated that Till does require application of the formula approach in
the context of chapter 13 plans. Id. 566-68. In addition, the Bankruptcy Appellate Panel for the
Sixth Circuit has endorsed the formula approach in the context of section 1325(a)(5).
DaimlerChrystler Servs. N. Am. LLC v. Taranto (In re Taranto), 365 B.R. 85, 90 (B.A.P. 6th Cir.

2007).

In a recent unpublished opinion, In re Blanton, 2010 WL 4503188 (Bankr. N.D. Ohio
2010), this court revisited its holding in Cook. Citing Till as authority, the debtors in Blanton
were attempting to reduce the interest rate on their vehicle from 23.52% to 5.25%. Blanton at *Y,
The creditor objected on the basis that the rate should either be the contract rate of 23.52% or a

subprime market rate of 15%. Id. at *1—*2.

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In Blanton, this court opined that “[w]hat has become obvious since Till was decided is
that courts have rushed headlong to embrace it as precedential when it is not based upon
traditional American jurisprudence.” Id. at *2. However, despite this reservation, the court
concluded that the Sixth Circuit would most likely adopt Till if presented directly with the issue
given the dicta in American Homepatient. Id. Applying Till, the court began with a prime rate of
3.25% and added a 2% risk factor to arrive at a cramdown interest rate of 5.25%. Id. The court
used a 2% interest rate because it was in the middle of the 1% to 3% range suggested in Till. Id.

The prime rate is still 3.25% and the court still believes that a 2% risk factor is reasonable
for automobiles, which are depreciating assets. The debtor asserts that the risk factor should be
lower for his particular car because he states that he has considerable equity. However, the
plurality in Till selected the formula approach specifically to avoid this sort of evidentiary
inquiry. Till, 541 U.S. at 479. Furthermore, the court has some doubts about the debtor’s claim of
equity given the disclosure that the vehicle has “some damage.”

Accordingly, the debtor’s objection to claim is granted, but only to the extent that it seeks
to cramdown the interest rate to 5.25%.

An order will issue with this opinion.
# # #

Service List:

Stephany Yvonne Dimery
616 Cline Ave

Unit 202

Mansfield, OH 44907

Toby L Rosen

400 W Tuscarawas St
Charter One Bank Bldg
4th Floor

Canton, OH 44702

Gregory Scott Reichenbach
P.O. Box 256
Bluffton, OH 45817

Credit Acceptance Corp.

25505 W. 12 Mile Rd. Ste 3000
Southfield, MI 48034

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