Thomas McDonald, Jr. v. Tamara Chambers ( 2021 )

NOT RECOMMENDED FOR PUBLICATION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
-2-
No. 20-1376, In re Chambers
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.
-3-
No. 20-1376, In re Chambers
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
-4-
No. 20-1376, In re Chambers
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
-5-
No. 20-1376, In re Chambers
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.
-6-