When he establishes a principle of law he intends to follow in future cases he prefers to spread the word informally. One such ‘edict’ (the judge’s own word) was issued August 18, 2014, on the issue of the appropriate interest rate to be paid to creditors when the debtor holds unexempt assets. Departing from the practice of his predecessor, Judge Warren will now require the “Till” rate, rather than the New York State judgment rate of 9%.
The issue comes up when a chapter 13 debtor has an asset he or she wishes to keep, even though it is not exempt from creditors. In chapter 7, the asset would be immediately liquidated bt the trustee on behalf of unsecured creditors. In chapter 13 the debtor can retain the asset by paying the value of the asset to the unsecured creditors in the plan. But since the asset is not being immediately liquidated and the value of the asset is being received over time (usually five years), the court has usually concluded that the creditors receive interest on the value of the asset until it is ‘paid for’ through the plan.
For example: say a debtor owns a car with $10,000 in equity beyond the motor vehicle exemption. In chapter 7, that debtor would have to pay the trustee the $10,000 up front (or over a very short period of time) or else the trustee will auction the car. But in chapter 13, the debtor gets to keep the car if the plan pays unsecured creditors the $10,000. As the creditors have to wait up to five years to receive payment, they should be compensated for the lost value of money over time.
Our previous bankruptcy judge required the plan to pay the interest rate judgment creditors receive if they have a money judgment in New York State: 9.0%. This is, of course, a very high interest rate in this era. Federal judgments are running at 0.11% interest rates, and this is the amount local chapter 7 trustees pay creditors in surplus cases (cases where there is a surplus of funds available even after paying all claims in full).
Rochester attorney Kenneth Gordon argued at a plan confirmation hearing on August 18 that the interest rate should be 2.5%. The chapter 13 trustee apparently also expressed some discomfort with the 9% interest rate. Judge Warren agreed and stated that in the future the interest rate would be based on the “Till” rate.
“Till rate” refers to the Supreme Court decision Till v. SCS Credit Corp., 541 U.S. 465 (2004). As interpreted locally, this means the same interest rate (adjusted for the same ‘risk factors’) as a secured creditor receives in a chapter 13 plan.