In re Fowler
493 B.R. 148
| Bankr. E.D. Cal. | 2012Background
- Debtor Fowler filed a voluntary chapter 13 petition and proposed a plan paying $779.30 monthly for 60 months, treating Rabobank as first secured and the County’s tax lien for $968 as secured.
- Debtor proposed 4% interest on the County’s tax claim; Rabobank objected, arguing §511(a) requires the rate per state law, i.e., 18%.
- Rabobank argued RTC §4103(b) is preempted by federal bankruptcy law under the Supremacy Clause and that the plan’s rate must reflect state law 18%.
- The court considered whether RTC §4103(b) is “applicable nonbankruptcy law” under §511(a) and whether it conflicts with or is preempted by federal law.
- The court discussed Applebaum, Collier, and other authorities to interpret “applicable nonbankruptcy law” and Congress’s intent in §511(a).
- The court held RTC §4103(b) is not unconstitutional and that the debtor must pay 18% per annum to the County, leading to denial of confirmation of the Plan.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is RTC §4103(b) unconstitutional as preempted by federal bankruptcy law? | Fowler argues §4103(b) is bankrupcy-specific and preempted. | Rabobank/County contend §4103(b) is not preempted and aligns with §511(a). | Not preempted; RTC §4103(b) applied; plan denial affirmed. |
| What qualifies as 'applicable nonbankruptcy law' under §511(a)? | Applebaum limits to non-bankruptcy-specific law; §4103(b) is excluded. | §511(a) permits state law, even if bankruptcy-specific, when Congress authorized it. | §511(a) can include state statutes like §4103(b); not limited to non-bankruptcy statutes. |
| Does Collier’s preemption view improperly restrict §511(a) | Collier holds §4103(b) preempted by §511(a). | Court should reject Collier’s interpretation and follow legislative history. | Court rejects Collier; §511(a) allows state-based rates under §4103(b). |
| What rate applies to the County’s secured tax claim in the plan? | Debtor may propose a rate consistent with Till, not necessarily 18%. | §4103(b) sets the rate at 18% for bankruptcy claims; plan must reflect that. | Debtor must pay 18% per annum on the County’s secured claim; plan confirmation denied. |
Key Cases Cited
- In re Applebaum, 422 B.R. 684 (9th Cir. BAP 2009) (discusses scope of 'applicable nonbankruptcy law')
- Collier, 416 B.R. 713 (Bankr.N.D. Cal. 2008) (bankruptcy-specific exemption/statutory preemption discussion)
- In re County of Orange, 262 F.3d 1014 (9th Cir. 2001) (redemption penalties discussed as penalties, not interest)
- Reinhardt v. Commissioner, 75 T.C. 47 (1980) (tax deductibility treatment of redemption penalties)
- United States v. Ron Pair Enters., Inc., 489 U.S. 235 (1989) (definition of interest vs. penalties in bankruptcy context)
- Kanter, 505 F.2d 228 (9th Cir. 1974) (earlier context on preemption and exemptions)
- Sheehan v. Peveich, 574 F.3d 248 (4th Cir. 2009) (Supremacy Clause analysis of bankruptcy-specific exemptions)
- MSR Exploration, Ltd. v. Meridian Oil, Inc., 74 F.3d 910 (9th Cir. 1996) (preemption doctrine overview)