Bloomberg Law’s® Bankruptcy Law News publishes case summaries of the most recent important bankruptcy law decisions, tracks major commercial bankruptcies, and reports on developments in bankruptcy...
By Diane Davis
A lower federal judgment rate should be used when calculating interest on distributions of unsecured claims in Chapter 7, the U.S. Bankruptcy Court for the Northern District of Georgia held Feb. 22 ( In re Robinson , 2017 BL 54489, Bankr. N.D. Ga., No.15-51556-JRS Chapter 7, 2/22/17 ).
When a bankruptcy estate has sufficient assets to pay post-petition interest, Bankruptcy Code Section 726(a)(5) requires it be calculated using “the legal rate from the date of the filing of the petition.”
The question in this case is whether that phrase means interest at the federal judgment rate, which is extremely low and generally less than 1 percent, or the applicable nonbankruptcy rate, which is 7.38 percent, according to the judgment on the unsecured claim that existed pre-petition, Judge James R. Sacca wrote.
The courts are split.
The leading case interpreting the phrase to mean the federal judgment rate is In re Cardelucci, 285 F.3d 1231 (9th Cir. 2002). The leading case on the applicable nonbankruptcy rate is In re Dvorkin Holdings, LLC, 547 B.R. 880 (N.D. Ill. 2016), the court said.
The Ninth Circuit in Cardelucci considered the issue in the context of a Chapter 11 plan confirmation, the court said. Interest should be paid at the federal judgment rate in that case because Congress chose the more specific language of “interest at the legal rate” instead of the more general language “interest on claims allowed,” the court said.
Post-petition interest in Cardelucci is procedural in nature and dictated by federal law. A single, uniform rate is equitable to all unsecured creditors and ensures that no creditor receives a disproportionate share of assets, the court in that case said.
When there is a surplus in the estate, as in Dvorkin, which also involved a Chapter 11 plan confirmation, there is a presumption that post-petition interest should be paid under the terms of the contract, the court said.
The better reasoned case is Cardelucci because Congress expressed its intention to have the interest rate in the statute apply by choosing the more specific language, the court said. Thus, the interest rate to be applied is the federal judgment rate, the court said.
The Wright Law Office, P.C., represented Calita Elston Robinson; Goodman & Goodman, P.C., and The Murry Law Group, P.C, represented Trustee Dale R. F. Goodman; David S. Weidenbaum, Office of the U.S. Trustee, represented Office of the U.S. Trustee.
To contact the reporter on this story: Diane Davis in Washington at DDavis@bna.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)