In re: Mildred Bratt

Debtor filed a chapter 13 bankruptcy petition in July 2014, listing a debt for delinquent property taxes, “oversecured” by a lien, so that 11 U.S.C. 506(b), authorizes payment of interest. Debtor’s plan proposed 12% interest under Tenn. Code 67-5-2010(a)(1) which provides: To the amount of tax due and payable, a penalty of one-half of one percent (0.5%) and interest of one percent (1%) shall be added on March 1, following the tax due date and on the first day of each succeeding month, except as otherwise provided in regard to municipal taxes.” Metro argued that the proper interest rate was 18% under Subsection 67-5-2010(d): For purposes of any claim in a bankruptcy proceeding pertaining to delinquent property taxes, the assessment of penalties determined pursuant to this section constitutes the assessment of interest (effective July 1, 2014) Subsection (d) was a response to an earlier decision that a 6% annual penalty under Subsection (a)(1) was not allowed under 11 U.S.C. 506(b). The bankruptcy court agreed with Debtor’s assertion that the rate should be 12%, holding that Subsection (d) directly conflicted with the bankruptcy statutes and “a well-defined federal policy that post-petition penalties that might otherwise be owed to secured creditors are simply not paid in bankruptcy cases.” The Sixth Circuit Bankruptcy Appellate Panel affirmed, holding that Subsection (d) is not applicable to determine the interest rate under 11 U.S.C. 511, and did not address whether Subsection (d) is constitutional. View "In re: Mildred Bratt" on Justia Law