On an issue dividing the lower courts, Bankruptcy Judge Thomas L. Perkins of Peoria, Ill., ruled that a chapter 13 debtor, not devoting all his disposable income to the plan, can confirm the plan by paying unsecured creditors in full, without interest.
The above-median debtor had more than $2,000 in monthly disposable income. The 60-month plan called for him to pay about $1,300 a month, in the process paying his unsecured debts in full without interest.
The trustee objected to the plan, thus invoking Section 1325(b), because the debtor was not paying interest on unsecured claims when monthly payments were less than disposable income. The case turned on Section 1325(b)(1)(A) and (B).
The debtor conceded that he could not confirm the plan under subsection (b)(1)(B) because he was not devoting all his “projected disposable income” to plan payments. He contended, however, that he was entitled to confirm under subsection (b)(1)(A) because the “value of the property to be distributed under the plan” was more than the amount of the claims.
In opposition, the trustee argued that the statutory language in subsection (b)(1), “as of the effective date of the plan,” modifies the word “value” to mean that the plan must pay the present value of the claims and therefore interest.
In his May 19 opinion, Judge Perkins noted that the Norton and Collier treatises differ on the outcome. Other than what he called the “exceptional right to interest under Section 1325(a)(4),” the judge said that “unsecured creditors in a chapter 13 case have no right to an immediate payment in full at the front end of the case.” Instead, he said that unsecured creditors “get paid from the debtor’s future income.” There is “no entitlement to interest” where “there is no forced deferral of any pre-existing payment right.”
Judge Perkins found a “policy decision” in subsection (b)(1)(A). If Congress intended for debtors to pay interest, he said that “Congress would have maintained statutory consistency by placing the phrase ‘as of the effective date of the plan’ immediately after the word ‘value.’” In his view, “different placement is best construed as conveying a different meaning.”
As a matter of statutory interpretation, Judge Perkins therefore held that a chapter 13 debtor can confirm a plan by paying 100% to unsecured creditors, without interest.