Till v. SCS Credit Corp.

Background

A married couple who bought a used truck fell behind on payments and filed a Chapter 13 repayment plan. They proposed paying their secured lender a lower “prime-plus” rate (about 9.5%) while the lender argued it was owed the 21% contract rate it charged on subprime loans. The Bankruptcy Court approved the lower, formula-based rate; the District Court and the Seventh Circuit favored a higher contract-based approach and remanded the case for further proceedings.

Reasoning

The Court addressed how to set an interest rate that makes deferred payments equal the secured creditor’s present claim value. It rejected methods that try to recreate what a lender could get in a new loan or that focus on the lender’s internal cost of funds because those require costly proof and can overcompensate creditors. Instead, the Court said bankruptcy judges should start from the national prime rate (reported publicly) and add a risk adjustment tailored to the bankruptcy estate — a familiar, objective “prime-plus” approach that limits expensive litigation and treats similarly situated creditors alike. The Court reversed the Seventh Circuit and sent the case back for proceedings under this method.

Real world impact

The ruling guides all bankruptcy courts to use the prime-plus method for cramdown interest calculations. That changes how many Chapter 13 plans are priced, reduces evidentiary burdens in hearings, and can affect how much secured creditors receive. The Court did not fix the exact size of the risk adjustment here, so lower courts must still decide specific rates.

Dissents or concurrances

Justice Thomas concurred in the judgment but urged a different statutory reading emphasizing only time-value compensation; Justice Scalia dissented, favoring the contract-rate presumption as better reflecting true risk.