Summary of a Recent
Judicial Development in
Bankruptcy

Chapter 12 Debtors Allowed to Exercise
"Cramdown" Rights

Patrick Roberts
National AgLaw Center Graduate Assistant

In In re Dany Yett, 306 B.R. 287 (B.A.P. 9th Cir. 2004), the United States Bankruptcy Appellate Panel of the Ninth Circuit confirmed, over a secured creditor's objection, a Chapter 12 plan that neither cured an existing default nor provided for payment at the contractual interest rate. Debtors Danny and Frances Yett filed for Chapter 12 bankruptcy and proposed in their reorganization that loans held by Creditor Wells Fargo be consolidated and paid in full over the life of the plan at the non-default contract rate. See id. at 289. Wells Fargo objected and argued that the plan should have provided for either cure by full payment or for payment of post-confirmation interest at the contractual default rate. See id. at 289-90. The bankruptcy court rejected Wells Fargo's argument, determining that the cramdown provisions of the Code applied and the interest rate should therefore be calculated at the non-default rate. See id. at 292-93. On review, the appellate panel determined that Wells Fargo would have been entitled to the default rate if it had demonstrated that the higher default rate compensated for actual losses. See id. at 293. The panel stated that Wells Fargo merely showed that the rate was within a generally acceptable range. See id. at 294. It concluded that since Wells Fargo failed to prove that the rate compensated for actual losses, it was only entitled to retain its lien and to receive the present value of the claim, which was equal to the non-default rate. See id.

The case was decided on January 27, 2004; this summary was posted Dec. 2, 2005.