CentsAbility: Creditors' Rights Law Update
July 23, 2015
A creditor recently received a wake-up call from the Bankruptcy Court for the District of South Carolina in In re Crawford, an opinion issued by the Court on June 8, 2015. In Crawford, the Court granted the debtors’ motion to compel their automobile lienholder to release its lien after the debtors made all payments under their Chapter 13 Plan. In addition, the Court awarded the debtors $7,325.00 in attorneys’ fees for the creditor’s failure to comply with the terms of the confirmed Plan. The creditor’s reasoning for refusing to release its lien was that the payments it received under the plan included interest at a rate of 5.25%, the presumptively reasonable rate in the District of South Carolina, instead of the contract rate of 17.25%. According to the creditor, the debtors still owed $10,966.17 after the completion of the Plan payments, the difference between the interest it received at the 5.25% Plan rate and the interest it would have received under the 17.25% contract rate.
The Court disagreed with the creditor’s position. Most importantly, the Court ruled that the creditor had no reasonable basis to refuse to release its lien based on the interest rate because the creditor failed to file an objection to the 5.25% interest rate included in the Plan. The creditor provided several reasons for not objecting to the Plan, including arguing that it did not have to object to the Plan since this vehicle loan fell under the “910 Rule”; however, the Court found none of these reasons persuasive for failing to object. In response, the Court held that the creditor’s silence during the objection period must be construed as acceptance of the Plan, and that confirmation of that Plan bound the creditor to all of its terms and conditions. Accordingly, because the Court viewed the creditor’s refusal to release its lien as a willful violation of the confirmation order, the Court awarded attorneys’ fees to the debtors in the amount of $7,325.00. In the Crawford case, it likely would have been difficult for the creditor to have successfully objected to the presumptively reasonable interest rate of 5.25%; however, the Court was clear that the creditor’s failure to object to the Plan amounted to acceptance of the Plan’s terms.
This point is equally made in an opinion issued by the Court in In re Ross on June 16, 2015. In Ross, the Court ruled that a creditor was not entitled to the full insurance proceeds from a wrecked motorcycle where that creditor failed to object to the debtors’ valuation of its claim secured by the motorcycle in the Chapter 13 Plan. The creditor argued that they did not have to object to the Plan because the Plan included an improper valuation under the “910 Rule” within the Bankruptcy Code; however, the Court disagreed and required that the creditor must file an objection to the valuation in the Plan, even where the claim was subject to the “910 Rule.”
The main takeaway from these opinions is a clear reminder that a creditor must timely object to any improper treatment of its claims in a debtor’s Chapter 13 Plan. If it fails to do so, the creditor will become bound by those terms upon confirmation.
In the District of South Carolina, a creditor has twenty-eight (28) days from the date the Plan is filed to file a written objection. If an objection is not filed and the Plan is confirmed, all parties are bound by that Plan like any other court order. Therefore, a subsequent refusal to comply with a confirmed plan could lead to sanctions being imposed on that creditor, like the attorneys’ fees awarded in the Crawford case.
If you have any questions regarding whether your institution’s treatment under a debtor’s Chapter 13 Plan is proper, contact Nexsen Pruet’s Bankruptcy and Creditors’ Rights team. We are always happy to help.