Jon W. Jordan


Until the United States Supreme Court's decision in Till v. SCS Credit Corp., secured creditors in Chapter 13 bankruptcy cases likely viewed the forced acceptance of a debtor's Chapter 13 repayment plan as a high-stakes game of chance. Prior to this decision, the interest rate applied to the deferred payments to "cram-down" creditors varied dramatically, depending upon the jurisdiction in which the debtor filed bankruptcy and the broad discretion of the bankruptcy court judge. However, by misinterpreting the legislative intent of Congress, the Supreme Court adopted a standard that will consistently under-compensate creditors. Suddenly, secured creditors' high-stakes game of chance has become a game of Russian Roulette using a fully-loaded gun - no longer do they even have hope of escaping a harsh result. In addition, the economic impact of the court's decision may extend well beyond the profit margins of Chapter 13 creditors. To compensate for their low rate of return in bankruptcy cases, creditors will likely increase interest rates to all borrowers. This reaction could both dampen consumer confidence and force additional debtors into bankruptcy. The Court indicated Till may also apply to equivalent cram-down provisions in Chapter 11 corporate reorganization plans. As the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 becomes law, the economic ripple effect of Till will be magnified as even greater numbers of debtors are funneled into Chapter 13 bankruptcy.

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