Till et ux. v. SCS Credit Corp.

LOCATION:Polk County Courthouse

DOCKET NO.: 02-1016
DECIDED BY: Rehnquist Court (1986-2005)
LOWER COURT: United States Court of Appeals for the Seventh Circuit

CITATION: 541 US 465 (2004)
ARGUED: Dec 02, 2003
DECIDED: May 17, 2004

David B. Salmons – argued the cause for Petitioners, on behalf of the United States, as amicus curiae
G. Eric Brunstad, Jr. – argued the cause for Respondent
Rebecca J. Harper – argued the cause for Petitioners

Facts of the case

Lee Till owed $4,000 in payments on his truck when he filed for Chapter 13 bankruptcy. Under the Bankruptcy Code, a Chapter 13 debtor must promise each creditor future payments “not less than the [claim’s] allowed amount.” When a repayment plan includes a series of payments (installments), as Till’s did, the installments must equal the “total present value” of the amount owed. Till proposed that he make monthly payments on the truck to SCS Credit with a 9.5 percent yearly interest rate, which was slightly higher than the average loan rate to make up for the increased risk that Till would fail to make a payment (because he had already declared bankruptcy once). SCS, however, argued that it was entitled to 21 percent interest because that was how much it would have made if it had foreclosed on the loan, taken the truck, sold it, and reinvested the proceeds. SCS argued that this 21 percent plan was necessary to ensure that the payments were equal to the “total present value” or “not less than the [claim’s] allowed amount.” The bankruptcy court ruled for Till. The district court reversed, imposing SCS’s 21 percent rate. A divided Seventh Circuit Court of Appeals panel modified that approach slightly, ruling that the 21 percent rate was probably correct but that the parties could introduce evidence that a higher or lower rate should apply.


What is the proper interest rate when a bankruptcy filer seeks to reschedule his payments on a loan so that they are equal to the “total present value” of the loan?

Media for Till et ux. v. SCS Credit Corp.

Audio Transcription for Oral Argument – December 02, 2003 in Till et ux. v. SCS Credit Corp.

Audio Transcription for Opinion Announcement – May 17, 2004 in Till et ux. v. SCS Credit Corp.

William H. Rehnquist:

The opinions of the Court in two cases will be announced by Justice Stevens.

John Paul Stevens:

In Till against the SCS Credit Corporation the case comes to us from the Seventh Circuit, it is a Chapter 13 bankruptcy case.

In what is known as the cram down option, a plan allowing the debtor to retain possession of an asset securing a creditor’s allowed claim can be approved over the objection of the creditor if the plan provides that the creditor will receive the value of the asset as of the date of the plan.

Normally that means that the plan will provide for a stream of installment payments that add up to the value of the asset plus interest.

The question in this case is how bankruptcy judges should set the interest rate.

Should they start with the rate that the debtor agreed to pay when he purchased the asset, in this case 21%, and place the burden on the debtor of proving that a lower rate is appropriate, because the plan cannot be approved without approval of the judge who must find that the plan is feasible and will likely succeed?

Or should they start with the prime rate, in this case 8%, and place the burden on the creditor of establishing how great an operate adjustment should be made?

A third possibility consistent with the statutory text would be to ignore the risk of default entirely and just use the prime rate.

This is a question on which many judges have disagreed and written at a great length.

We have done so as well.

Four of us, Justices Souter, Ginsburg, Breyer, and I, have concluded that we should presume that an approved plan will succeed.

Justice Scalia joined by the Chief Justice and Justices O’Connor and Kennedy, agree with the Seventh Circuit and would endorse the presumptive contract rate.

Because Justice Thomas analysis is closer to ours than to the dissenters, he joins the judgment reversing the Court of Appeals.