UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
CORBIN
DIVISION
IN RE:
TERRELL GLENN LOVING
KAREN BENNETT LOVING
DEBTORS
CASE NO. 98-60247
The Bank was designated a Class 7 Joint Unsecured Creditor and
was offered the opportunity to be treated as a Class 5 Unsecured Cashout Creditor for 80%
of its ACrossover Creditors= Adjusted Claim.@ This treatment is
set out in the Disclosure Statement (Doc. # 84) in pertinent part as follows:
This Class shall include all Class 7 Unsecured Husband and Wife
Joint Claims who elects (sic) on their Ballots voted prior to Confirmation to be treated
as or to cross-over into this Class. .... The election shall operate as a full and
complete satisfaction of the claim upon the payment by the Debtor on the Effective Date of
80% of any Class 7 Creditor=s claim, if treated in Class 5 as a cashout. Thus once that payment is received, the electing
creditor shall be fully satisfied and will have no further claims against the Debtors or
the Debtors= Estate.
. . .
. . .
.... Buy (sic) definition, their 80% will be calculated under a
formula to equalize their claims among themselves, plus interest to December 1, 1998.
The actual
definition of a Crossover Creditor=s Adjusted Claim is found at &1.21 of the Plan. It
states that such a claim
shall mean the Claim of any Class 7 Creditor adjusted upon their
election to be treated in Class 5, which Claim shall be paid 80% of such Claim (with
contract interest calculated to the Petition Date) less any payments or credits applied
thereon from any source after the Petition Date, plus 8% interest added thereon from the
Petition Date to December 1, 1998.
The Bank and
the debtors differ as to the amount upon which the 8% interest is to be calculated.
When the Bank submitted its ballot, making the election set out
above, it showed interest on its claim in the amount of $44,933.28 calculated on the basis
of a declining balance to account for principal payments received between February 20,
1998 and December 1, 1998. The debtors
re-calculated the interest on the account balance due, thereby decreasing the amount of
interest to $24,531.61. The Bank=s Crossover Adjusted Claim was consequently reduced, as was its
net distribution. The Bank states that it
agreed to vote for confirmation only if the debtors agreed to let it come back and
petition the Court for the additional interest it claims is due.
The Bank argues that it was entitled to calculate its interest on
a declining balance basis because the Plan does not specify that the Crossover Creditors
would apply payments received since the petition date first to post-petition interest and
thereafter to principal. The Bank states that
it applied each payment made to the principal balance of the loan, and then allowed the
interest to continue to accrue at 8% on the remaining reduced principal balance. The debtors respond that &1.21 of the Plan clearly defines the method of calculation as a
determination of the petition date amount due with pre-petition contract interest
included, with post-petition payments deducted, resulting in a figure against which 8%
interest would be added from February 20, 1998 to December 1, 1998.
It appears to the Court that the Bank ignored the language
contained in the Disclosure Statement and the Plan. As
set out above, the debtors made clear their intention to Aequalize@ the claims of the Crossover Creditors among themselves. Contrary to the contentions of the Bank, the
definition in &1.21 of the Plan enunciates a formula which requires the
subtraction of the total of any post-petition amounts paid on the claim, with 8% interest
calculated on the remainder for the designated period.
The pertinent language, A.... such Claim .... less any payments or credits applied thereon
...., plus 8% interest added thereon ....,@ does not appear to offer the Bank the option of calculating its
interest on a declining balance.
Even the ballot form is consistent with the debtors= understanding of how these calculations are to be made. The items on the ballot form are as follows:
[1] Claim amount due as of Petition Date with interest accrued to
February 20, 1998
[2] Less: any sums received on Claim subsequent to February 20,
1998
[3] Account balance due:
[4] Add: Interest on Account Balance Due at 8% from February 20,
1998 to December 1, 1998
[5] Creditor=s Crossover Adjusted Claim
[6] Net Distribution to Class 5 (Class 7) Creditor
This form
clearly indicates that once the account balance due is calculated, interest is to be
calculated on that amount. The Bank entered the total of post-petition payments
made at item [2] above and arrived at an account balance due at item [3], but its
adherence to the formula set out by the debtors stopped there.
Review of the Disclosure Statement, the Plan as confirmed, and
the ballot form brings the Court to the conclusion that the debtors made their intentions
clear as to the treatment of the Crossover Creditors.
The Bank simply chose to calculate the interest due it by its own method, not the
method set out by the debtors. It did not
have this option. For the foregoing reasons,
the Court will overrule the Bank=s Motion for Allowance of Interest on Claim by separate order.
Dated:
By the Court
-
Judge
Copies to:
Debtors
John T. Hamilton, Esq.
W. Thomas Bunch, Esq.
U.S. Trustee