496 B.R. 456
Bankr. S.D. Ohio2013Background
- Debtors filed a Chapter 13 plan with a 2% dividend to unsecured creditors.
- Plan conditions future net recovery from a potential Preference Action (avoidance of a garnishment transfer) on Trustee election to pursue it.
- Trustee objected to confirmation, arguing the plan fails §1325(a)(4) best interests test.
- Present value of Plan distributions is less than estimated Chapter 7 liquidation recovery (Liquidation Amount).
- Debtors claim Trustee need not pursue avoidance actions; Loeffler rationale is distinguished; plan purports to fund any recovery if pursued.
- Court finds the plan does not meet the best interests test because it conditions recovery on Trustee action and undervalues unsecured claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether plan satisfies §1325(a)(4) best interests test. | Engle (Trustee) | Engle (Debtors) | Plan fails §1325(a)(4) because PV of distributions < Chapter 7 recovery. |
| Whether conditioned recovery on Trustee’s election to pursue avoidance actions satisfies §1325(a)(4). | Trustee | Debtors; Loeffler supports conditional approach | Conditioning recovery on Trustee action does not satisfy §1325(a)(4). |
| Appropriate discount rate to determine present value under §1325(a)(4). | Trustee uses Till-based rate (5.25%). | Debtors favor lower rate; inflation-only | Till-based rate appropriate; Debtors’ lower rate rejected. |
| Whether Trustee’s potential avoidance recovery must be guaranteed to creditors. | Trustee | Debtors; plan need not guarantee actual pursuit | No guarantee; plan must provide actual avoidance or assure distribution; conditional approach insufficient. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (formula approach to discount rate for present value in bankruptcy)
- In re Dewey, 237 B.R. 783 (Bankr. BAP 1999) (best-interests test requires present-value comparison with Chapter 7 recovery)
- In re Cox, 247 B.R. 556 (Bankr.D.Mass.2000) (avoidance actions to increase estate assets considered in calculation)
- Dickson, 427 B.R. 399 (Bankr. M.D. Fla.2010) (trustee’s duty and ability to pursue avoidance actions in Chapter 13)
- Loeffler, 2011 WL 6736066 (Bankr.D. Colo.2011) (distinguishes Loeffler on trustee-driven avoidance actions; plan may provide for net recovery to creditors)