Source: https://lundinonchapter13.com/Content/Section/136.17
Timestamp: 2019-12-13 13:14:30
Document Index: 408114187

Matched Legal Cases: ['§ 136', '§ 136', '§ 1322', '§ 507', '§ 1328', '§ 507', '§ 101', '§ 507', '§ 1328', '§ 101', '§ 502', '§ 1322', '§ 101', '§ 1322', '§ 1322', '§ 507', '§ 101', '§ 1322', '§ 101', '§ 1322', '§ 507', '§ 507', '§ 507', '§ 1322', '§ 1325', '§ 1325', '§ 1322', '§ 100', '§ 73', '§ 136', '§ 73', '§ 502', '§ 507', '§ 440', '§ 73', '§ 1328', '§ 552', '§ 523', '§ 159', '§ 523', '§ 160', '§ 101', '§ 153', '§ 88', '§ 88', '§ 151', '§ 87', '§ 88', '§ 507', '§ 522', '§ 136', '§ 11', '§ 14', '§ 300', '§ 136', '§ 146', '§ 511', '§ 67', '§ 511', '§ 511', '§ 511', '§ 511', '§ 511', '§ 511', '§ 511', '§ 1322', '§ 523', '§ 523', '§ 523', '§ 1322', '§ 941', '§ 507', '§ 502', '§ 101', '§ 1322', '§ 101', '§ 511', '§ 511', '§ 506', '§ 506', '§ 506', '§ 511', '§ 511', '§ 101', '§ 1322']

§ 136.17 Postpetition Interest on Priority Claims after BAPCPA
Cite as: Keith M. Lundin, Lundin On Chapter 13, § 136.17, at ¶ ____, LundinOnChapter13.com (last visited __________).
BAPCPA did not change the general rule that in a Chapter 13 case a debtor can pay priority claims in full through the plan without postpetition interest under § 1322(a)(2).1 Sometimes this is good news for Chapter 13 debtors. For example, taxes entitled to priority under § 507 that are not also nondischargeable at the completion of payment under § 1328(a) can be paid in a Chapter 13 case in full without postpetition interest, and the debtor discharges the debt entirely.
When an unsecured debt is nondischargeable in a Chapter 13 case and accrues postpetition interest, the debtor has a problem because postpetition interest is generally not allowable and can’t be paid through the plan.2 The accruing postpetition interest on a nondischargeable claim is a nondischargeable debt that will follow the debtor after the completion of payments under the plan. There is no reliable way for a Chapter 13 debtor to pay postpetition interest on account of an unsecured debt that is also nondischargeable when other unsecured creditors are not being paid in full with interest through the plan.
When the nondischargeable debt is also a priority debt, the debtor is obligated to pay the claim in full, but prior to BAPCPA, priority status did not give Chapter 13 debtors license to pay postpetition interest to an unsecured claim holder.
There is a new possibility in Chapter 13 cases: a claim that is nondischargeable, that is entitled to priority under § 507 and that includes postpetition interest. A domestic support obligation (DSO), as defined by BAPCPA in new § 101(14A), includes postpetition interest, is granted first priority by § 507(a)(1)3 and is nondischargeable under § 1328.4
“Notwithstanding any other provision of” title 11, a DSO is defined by § 101(14A) to include “interest that accrues on that debt as provided under applicable nonbankruptcy law.”5 Unlike any other unsecured debt in a Chapter 13 case, DSOs after BAPCPA include interest accruing before and after the petition. Presumably, the “notwithstanding” phrase would prevent disallowance of postpetition interest as part of a DSO if an objection were raised under § 502(b)(2). Would the “notwithstanding” also overcome objection to confirmation of a plan that proposed to pay the DSO in full with postpetition interest notwithstanding that other unsecured claim holders—including other priority claim holders—would not receive postpetition interest under the plan? Is the unfair discrimination barrier to classification of claims in § 1322(b)(1) trumped by the “notwithstanding” in § 101(14A)? The answer is probably yes: the “subject to” § 1322(a) in § 1322(b) allows the favorable classification, and the “notwithstanding” adds postpetition interest to the DSO claim.6
Chapter 13 debtors will want to separately classify DSOs for full payment with postpetition interest to maximize the use of disposable income to pay a debt that will otherwise accrue interest and be nondischargeable after the completion of payments under the plan. In the pre-BAPCPA world, efforts by Chapter 13 debtors to pay nondischargeable student loans in full with or without postpetition interest when other unsecured claim holders were not being paid in full were generally rejected by the courts.7 Debtors were allowed to pay priority claims for alimony, maintenance or support in full because those debts were priority claims under § 507, not because they were nondischargeable.8
The added wrinkle after BAPCPA is the definition in § 101(14A) that includes postpetition interest in the DSO debt itself. Arguably, paying a priority DSO in full as required by § 1322(a)(2) includes paying the accruing postpetition interest component of the debt. This interpretation of § 101(14A) and § 1322(a)(2) should overcome the reluctance of the courts pre-BAPCPA to allow the payment of postpetition interest on priority claims through a Chapter 13 plan.
There is one other new priority debt that may be entitled to postpetition interest. BAPCPA added a new tenth priority to § 507(a) for “allowed claims for death or personal injury resulting from the operation of a motor vehicle or vessel if such operation was unlawful because the debtor was intoxicated from using alcohol, a drug, or another substance.”9 Unlike the other debts entitled to priority under § 507(a), this tenth priority is not limited to “unsecured” claims. A DWI debt that fits the new tenth priority could also be secured by a lien. This is not a far-fetched possibility. Under nonbankruptcy law, the recording of a DWI judgment is likely to constitute a lien on the debtor’s property.
In a Chapter 13 case, a DWI debt secured by a lien and entitled to tenth priority under new § 507(a)(10) might be entitled to both payment in full under § 1322(a)(2) and treatment as a secured debt under § 1325(a)(5). The typical treatment of a secured debt under § 1325(a)(5) includes present value interest.10 A similar possibility existed under pre-BAPCPA law for alimony, maintenance or support secured by a lien on estate property.11
1 11 U.S.C. § 1322(a)(2), discussed in §§ 100.2 [ Interest Not Required, with Exceptions ] § 73.5 Interest Not Required, with Exceptions, 299.1 [ Postpetition Interest on Priority Claims ] § 136.16 Postpetition Interest on Priority Claims before BAPCPA and 441.1 [ New and Changed Treatment of Priority Claims ] § 73.6 Treatment of Priority Claims Changed by BAPCPA.
2 See 11 U.S.C. § 502(b)(2).
3 See 11 U.S.C. § 507(a)(1), discussed in § 440.1 [ New and Changed Priority Claims ] § 73.3 Priority Claims Added or Changed by BAPCPA.
4 See 11 U.S.C. § 1328(a) and (b), discussed in §§ 552.1 [ Domestic Support Obligations: § 523(a)(5) ] § 159.5 Domestic Support Obligations: § 523(a)(5) and 558.1 [ New and Changed Exceptions to Hardship Discharge ] § 160.7 Exceptions to Hardship Discharge Added or Changed by BAPCPA.
5 11 U.S.C. § 101(14A).
7 See §§ 153.1 [ Student Loans ] § 88.6 Student Loans and 155.2 [ Long-Term Debts ] § 88.9 Long-Term Debts.
8 See §§ 151.1 [ Priority Claims ] § 87.4 Priority Claims and 152.2 [ Alimony, Maintenance and Support ] § 88.4 Alimony, Maintenance and Support.
9 11 U.S.C. § 507(a)(10), discussed in § 522.1 [ The New DWI Priority ] § 136.22 The Driving or Boating while Intoxicated Priority after BAPCPA.
10 See § 11.1 [ Dollar Amounts ] § 14.1 Dollar Amounts.
11 See §§ 300.1 [ Secured Priority Claims? ] § 136.18 Secured Priority Claims before BAPCPA and 321.1 [ Standing, Procedure and Grounds for Conversion to Chapter 11 ] § 146.1 Standing, Procedure and Grounds for Conversion to Chapter 11.
Tennessee v. Hildebrand (In re Corrin), 849 F.3d 653, 658 (6th Cir. Feb. 23, 2017) (Merritt, Moore, Stranch) (“Nonbankruptcy law” reference in § 511 is interpreted to mean that a penalty interest rate provision of Tennessee law that is only applicable in bankruptcy cases does not apply to a tax claim in a Chapter 13 case because the state law is a “bankruptcy law.” “[T]he appropriate way to read ‘applicable nonbankruptcy law’ is as referring to any law that is not aimed solely at bankruptcy proceedings. The language of the Bankruptcy Code indicates Congress was granting authority to states to set generally applicable interest rates, but not interest rates specific to bankruptcy proceedings. . . . Tenn. Code Ann. § 67–5–2010(d) is not an ‘applicable nonbankruptcy law’ as that term is used in § 511(a) because the law is targeted at bankruptcy proceedings, not a law of general applicability.”), aft'g 549 B.R. 462, 468 (B.A.P. 6th Cir. Apr. 26, 2016) (Delk, Opperman, Wise) (Because state statute declaring 6% "penalty" was really "interest" applicable only in bankruptcy cases, statute was a "bankruptcy law" that could not apply under § 511—only "nonbankruptcy" law is consulted to determine the interest rate on tax claims. "Section 511 instructs bankruptcy courts to apply a generally applicable tax interest rate, but its clear directive for the use of applicable nonbankruptcy law leaves no room for the creation or application of a special tax interest rate pertaining strictly and solely to bankruptcy matters. . . . [Section] 511's plain language requires bankruptcy courts to use an interest rate that is determined under nonbankruptcy law. Subsection (d) of the Tennessee statute is a bankruptcy law because it creates an interest rate that is only used in bankruptcy cases. . . . [U]nder § 511's plain meaning, Subsection (d) cannot be applied to determine the interest rate.").
Tax Ease Funding, L.P. v. Thompson (In re Kizzee-Jorden), 626 F.3d 239, 243-46 (5th Cir. Nov. 11, 2010) (Jones, Reavley, Haynes) (Third-party lender who pays debtor's ad valorem taxes and receives transfer of tax lien under Texas law holds a tax claim protected from modification by § 511. "Section 511 protects the interest rate due on this 'right to payment' held by governmental entities and by private parties alike because it includes 'creditors' within the realm of those able to make tax claims. . . . Tax Ease, as the transferee of the tax lien, and a subrogee of the taxing authorities' rights, holds a tax claim for purposes of § 511. The district court therefore correctly held that the bankruptcy court could not modify the interest rate due on the claim."), aff'g No. H-09-333, 2009 WL 3186727 (S.D. Tex. Sept. 28, 2009) (unpublished) (Hughes), rev'g 399 B.R. 817 (Bankr. S.D. Tex. Jan. 29, 2009) (Isgur) (Citing In re Sheffield, 390 B.R. 302 (Bankr. S.D. Tex. 2008), claim held by creditor that paid delinquent taxes under Texas law and acquired tax lien is based on a "garden variety promissory note executed by the debtor" and is not entitled to special postpetition interest rate afforded tax claimants under § 511.).
In re Bowers, 506 B.R. 249 (B.A.P. 6th Cir. Nov. 22, 2013) (Emerson, Lloyd, Preston) (Interest rate on Ohio tax certificate purchased by investor is determined under Ohio law and § 511, and appropriate rate is negotiated contract rate of .25%—not 18%—when Chapter 13 plan pays the certificate.), aff'd, 759 F.3d 621 (6th Cir. July 21, 2014) (Keith, Clay, McKeague).).
In re Ladona, No. 11-10400-BAH, 2017 WL 2437233, at *3 (Bankr. D.N.H. June 2, 2017) (Harwood) (Because of § 1322(b)(10), plan that does not pay unsecured creditors in full cannot provide for postpetition interest on tax claim that would be nondischargeable under § 523(a)(1)(B); postpetition interest continued to accrue during the Chapter 13 case and that interest is nondischargeable and can be collected by the IRS after discharge. “[T]here is no dispute that the Debtor’s 2009 tax return was filed late, and therefore, is not a ‘return’ under 11 U.S.C. § 523(a)(1)(B). As a result, it naturally follows that the 2009 tax liabilities arising from the late return are excepted from discharge under 11 U.S.C. §§ 523(a)(1)(B) and 1328(a)(2). . . . Pursuant to 11 U.S.C. § 1322(b)(10), a plan may only provide for the payment of post-petition interest on ‘unsecured claims that are nondischargeable under section 1328(a),’ when ‘the debtor has disposable income available to pay such interest after making provision for full payment of all allowed claims.’ Here, the Plan did not provide for payment in full of all allowed claims, and thus could not, as a matter of law, provide for the payment of post-petition interest on the IRS’s claim. . . . [I]nterest during the term of the Plan . . . continued to accrue and was not discharged.”).
In re Thaxton, No. 2:09-bk-20649, 2017 WL 2371121, at *2 (Bankr. S.D. W. Va. May 30, 2017) (Volk) (Chapter 13 debtor’s personal liability for responsible officer § 941 taxes is nondischargeable under § 507(a)(8)(C); postpetition “unmatured” interest that accrues during the Chapter 13 case cannot be paid under § 502(b)(2) and remains a personal liability of the debtor after completion of payments and discharge. “A Chapter 13 plan must thus provide for payment in full of an allowed priority tax claim, without post-petition interest. . . . [P]ostpetition interest accrues outside the Chapter 13 plan and the debtor remains personally liable therefor post discharge.”).
In re Lightfoot, No. 13-32970-H4, 2015 WL 3956211 (Bankr. S.D. Tex. June 22, 2015) (Bohm) (Because interest under state law is part of a domestic support obligation under § 101(14A) as amended by BAPCPA, plan can pay interest without violating § 1322(b)(10) even when other unsecured claims are not paid in full. Sections 502(b)(2) and (b)(5) do not disallow interest that is part of DSO because of "notwithstanding" clause in § 101(14A).).
In re Curry, No. 12-26201, 2013 WL 5493415 (Bankr. D.N.J. Oct. 2, 2013) (Winfield) (Interest on purchased tax claim is calculated under state law pursuant to § 511, including use of 360-day year.).
In re Kopec, 473 B.R. 597 (Bankr. D.N.J. June 20, 2012) (Ferguson) (Holder of tax sale certificate under New Jersey law has a "tax claim" for § 511 purposes and is entitled to interest at state statutory rate.).
In re Gift, 469 B.R. 800 (Bankr. M.D. Tenn. Mar. 22, 2012) (Mashburn) (Penalty portion of Government's oversecured tax claim was not entitled to postpetition interest. Applying rationale of Bondholder Committee v. Williamson County (In re Brentwood Outpatient, LTD), 43 F.3d 256 (6th Cir. Dec. 13, 1994) (Merritt, Milburn, Siler), § 506(b) was amended by BAPCPA to add state statute as basis for allowing oversecured creditor's recovery of interest on non-consensual liens, but Brentwood conclusion that § 506(b) did not include penalties was still valid. "Penalty" was not within § 506(b) "fees, costs or charges.").
In re Montgomery, 446 B.R. 475 (Bankr. D. Kan. Feb. 7, 2011) (Somers) (Secured portion of IRS claim for income taxes is entitled to interest determined under nonbankruptcy law pursuant to § 511.), aff'd, No. 11-2107-CM, 2012 WL 2448928 (D. Kan. June 26, 2012) (Murguia).).
In re Sheffield, 390 B.R. 302 (Bankr. S.D. Tex. July 2, 2008) (Isgur) (Nongovernmental party that paid tax claim and received assignment of tax lien under Texas law does not hold a "tax claim" for § 511 purposes and is not entitled to interest at rate determined by nonbankruptcy law.).
In re Reid, No. 06-50147, 2006 WL 2077572, at *2 (Bankr. M.D.N.C. July 19, 2006) (unpublished) (Because the definition of DSO in § 101(14A) includes interest that accrues on the debt under nonbankruptcy law, the plan "must provide for the payment of any interest accruing pursuant to nonbankruptcy law on any claims for domestic support obligations.").
In re Gentry, No. 05-60728-RLJ 13, 2006 WL 6544156 (Bankr. N.D. Tex. June 12, 2006) (Jones) (Tax claim cannot be separately classified for payment of postpetition interest under § 1322(b)(10) when only argument for separate classification was that debt was a domestic support obligation and debtor failed to prove that payment of taxes was actually in the nature of alimony, maintenance or support.).