On Appeal From the United States District Court For the District of New Jersey. (D.C. Civil Action No. 91-04066).
Before: Stapleton and Cowen, Circuit Judges, and Dubois, District Judge.
STAPLETON, Circuit Judge:
These chapter 13 bankruptcy cases require us to determine the rate of interest which will assure that a secured creditor receives payments under a chapter 13 plan having a present value equal to the value of its allowed secured claim, as required by 11 U.S.C. § 1325(a)(5)(B)(ii). This is a question of first impression in this Circuit. We hold that the rate of interest under § 1325(a)(5)(B)(ii) is that which the secured creditor would charge, at the effective date of the plan, for a loan similar in character, amount and duration to the credit which the creditor will be required to extend under the plan. We will reverse the district court's judgment upholding the order of the bankruptcy court and will remand these cases for proceedings consistent with this opinion.
Appellee Jones possessed a Chevy pickup truck which he purchased pursuant to a financing agreement with appellant General Motors Acceptance Corporation (GMAC). Jones filed a voluntary petition and a plan under chapter 13 of the bankruptcy code, 11 U.S.C. §§ 1301 et. seq. The value of the truck, as collateral, was less than the amount Jones owed to GMAC on the date of the filing, and Jones was able to reduce the amount of GMAC's secured claim down to the value of the collateral.*fn1 Jones's plan proposed to reduce the secured claim due to GMAC as of the filing date from $15,713.98 at 11.98% annual rate of interest, to $11,500.00 at 10% interest. Appellee Jordan also possessed a GMC pickup truck purchased pursuant to a financing agreement with GMAC. The value of the truck as collateral also was less than the amount Jordan owed to GMAC. Jordan filed a plan proposing to reduce the secured claim owed to GMAC from $15,115.79 at 13%, to $9,700.00 at 10%. In both cases, GMAC objected to the interest rate, contending that a 10% rate was too low to provide GMAC with the present value of its allowed secured claim over the time of the plan, as required by § 1325 (a)(5)(B)(ii).
In confirmation hearings on the two plans, the bankruptcy court held that the presumptive market indicator of the appropriate interest rate is the prime rate. The district court affirmed without opinion, and GMAC filed this appeal.
This Court has jurisdiction pursuant to 28 U.S.C.
§ 158(d). The issue presented in this case is a question of law, over which this Court has plenary review. Meridian Bank v. Alten, 958 F.2d 1226 (3d Cir. 1992).
Chapter 13 of the Bankruptcy Code provides for the adjustment of debts for individual debtors with regular income. A chapter 13 case begins when the debtor files a voluntary petition of bankruptcy. This petition will stay most proceedings by creditors against the debtor and his property. Generally, the debtor must propose a plan for payment of his debts within fifteen days of the filing of the petition.*fn2 Creditors with an interest in the plan are given twenty-five days' notice*fn3 before the plan comes before the bankruptcy court for confirmation.
In situations known as "cramdowns", the plan may be confirmed over the objection of a secured creditor if certain conditions are met. Specifically, in a chapter 13 "cramdown", a debtor may retain property in which a secured creditor has a security interest, even if the secured creditor would prefer to repossess and liquidate the property as it would be entitled to do in the absence of a bankruptcy filing. In exchange for giving the debtor a right to continue possession of the property, § 1325 (a)(5)(B) directs two things: (i) the secured creditor shall retain a continuing lien on the property; and (ii) the secured creditor shall receive from the debtor "the value, as of the effective date of the ...