DEBTORS                                         CASE NO. 98-60247                               Chapter 11


      This matter has come before the Court on the Motion for Allowance of Interest on Claim (Doc. # 119) filed by creditor Peoples Exchange Bank of Beattyville (Athe Bank@), the debtors= Response (Doc. # 149) and the Bank=s Reply (Doc. # 152).  The issue before the Court is the method of calculation of interest on the Bank=s claim.  The Bank contends that it is due more interest than the amount allotted to it in the Debtors= Plan of Reorganization (Doc. # 85) (Athe Plan@).  That Plan was confirmed by the Order of Confirmation (Doc. # 108) entered herein on December 16, 1998 and that order is not now subject to appeal.

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.



By the Court -










Copies to:



John T. Hamilton, Esq.

W. Thomas Bunch, Esq.

U.S. Trustee