Summary:
In In re Peters, Judge Kahn addressed a recurring question: when Chapter 13 debtors propose to pay unsecured claims in full under §1325(b)(1)(A), must those creditors also receive post-petition interest?
The Peters, above-median income debtors, proposed to pay 100% of unsecured claims over a five-year plan, without interest. The Trustee objected, arguing that because the Debtors were not devoting all of their monthly disposable income, §1325(b)(1)(A) required interest to ensure unsecured creditors received the “present value” of their claims. At 8% interest, this could have required the Peters to pay as much as $30,000 more over the length of their Chapter 13 plan.
Judge Kahn rejected that argument, aligning the Middle District of North Carolina with the majority approach. Reading §1325(b)(1) “as written and as punctuated,” the Court held that its two subsections are disjunctive — a debtor may satisfy either (A) or (B), but not both — and that the phrase “as of the effective date of the plan” modifies the timing of the court’s confirmation analysis, not the value of distributions.
The Court contrasted §1325(b)(1)(A) with §§1325(a)(4) and (a)(5)(B)(ii), which explicitly require “value, as of the effective date of the plan.” That consistent statutory variation, Judge Kahn explained, reflects congressional intent. Applying an interest requirement to §1325(b)(1)(A) would not only violate that structure but create an unjustified windfall for creditors, since even a full-income plan does not provide immediate payment.
Judge Kahn’s ruling relied on In re Gillen, 568 B.R. 74 (Bankr. C.D. Ill. 2017); In re Moore, 635 B.R. 451 (Bankr. D.S.C. 2021); In re Edward, 560 B.R. 797 (Bankr. W.D. Wash. 2016); and the analysis in Collier on Bankruptcy §1325.11[3], concluding that no “present value” requirement applies under §1325(b)(1)(A). The Trustee’s objection was overruled.
Commentary:
A careful, textual opinion that exemplifies Judge Kahn’s methodical approach to statutory construction — and a welcome confirmation (literally) that Chapter 13 debtors who pay unsecured creditors in full do not owe them interest simply for choosing repayment over liquidation.
This ruling is significant in both doctrine and tone. It underscores that §1325(b)(1) offers two independent paths to confirmation: debtors may either pay all projected disposable income under (B) or pay unsecured claims in full under (A). Trustees who try to graft a “present value” gloss from §§1325(a)(4) and (a)(5) are, as Judge Kahn notes, ignoring Congress’s deliberate shift in phrasing. Grammar matters — and here, syntax protects substance.
From a policy standpoint, the Court rightly recognized that unsecured creditors in Chapter 13 are already better off than they would be in Chapter 7, where post-petition earnings are excluded from the estate entirely. Imposing interest atop a 100% plan would distort that balance and penalize good-faith debtors who attempt full repayment.
This decision thus harmonizes the Middle District’s approach with the majority view nationwide, providing clarity to both trustees and practitioners drafting above-median 100% plans.
Kudos: Congratulations to Koury Hicks for his crisp advocacy and clear briefing — once again showing why he’s among the most thoughtful consumer lawyers practicing before the Middle District bench. And credit to Hector Quesada, whose earlier research and argumentation helped pave the way for this interpretation of §1325(b)(1)(A).
