Till v. Scs Credit Corporation

541 U.S. 465 (2004)


Ps purchased a used truck by entering into a retail installment contract that was immediately assigned to SCS Credit Corporation (D). The finance charge was 21% per year. Ps agreed to make 68 biweekly payments. Ps eventually filed Chapter 13. D's outstanding claim amounted to $4,894.89, but everyone agreed that the truck securing the claim was worth only $4,000. D's secured claim was limited to $4,000, and the $894.89 balance was unsecured. Ps' plan called for them to submit their future earnings to the supervision and control of the Bankruptcy Court for three years, and to assign $740 of their wages to the trustee each month. The plan also provided that Ps would pay interest on the secured portion of respondent's claim at a rate of 9.5% per year. Ps used the 'prime-plus' or 'formula rate' by augmenting the national prime rate of approximately 8% to account for the risk of nonpayment posed by borrowers in their financial position. D contending that it was 'entitled to interest at the rate of 21%, which is the rate . . . it would obtain if it could foreclose on the vehicle and reinvest the proceeds in loans of equivalent duration and risk as the loan.' The court confirmed Ps plan. The District Court reversed. Seventh Circuit precedent required that bankruptcy courts set cram down interest rates at the level the creditor could have obtained if it had foreclosed on the loan, sold the collateral, and reinvested the proceeds in loans of equivalent duration and risk. The District Court reversed by concluding that 21% was the appropriate rate. This method was known as the coerced loan approach. On appeal, the Seventh Circuit used a slightly modified version of the coerced loan' approach called the contract loan rate. The majority held that the original contract rate should 'serve as a presumptive [cram down] rate,' which either the creditor or the debtor could challenge with evidence that a higher or lower rate should apply. The Supreme Court granted certiorari.