Till v. SCS Credit Corp.
The Supreme Court ruled that when a Chapter 13 bankruptcy plan forces a secured creditor to accept future payments instead of an immediate payoff, courts should set the interest rate by starting with the national prime rate and adding a risk adjustment — not by using the loan's original, often much higher, contract rate.
The decision resolves a split among lower courts over how to compensate lenders, like the auto-finance company here, when individual debtors restructure their debts, shaping how much interest people repaying car loans and other secured debts in bankruptcy will owe going forward.
“A debtor's promise of future payments is worth less than an immediate payment of the same total amount because the creditor cannot use the money right away, inflation may cause the value of the dollar to decline before the debtor pays, and there is always some risk of nonpayment.”
Explains why deferred bankruptcy payments must include interest to match their present value.
How it got here: The Bankruptcy Court approved the debtors' 9.5% rate; the District Court reversed and required the 21% contract rate; the Seventh Circuit affirmed a modified contract-rate approach, and the debtors sought Supreme Court review.
The Case in Depth
What happened
Lee and Amy Till bought a used truck on credit at 21% annual interest, then fell behind on payments and filed for Chapter 13 bankruptcy. Their plan proposed repaying their lender's $4,000 secured claim over time at a lower, "prime-plus" interest rate of 9.5%, but the lender argued it was entitled to the original 21% contract rate to be properly compensated for lending risk.
The question before the Court
When a bankruptcy plan forces a secured lender to accept payments over time instead of an immediate payoff, what interest rate must the debtor pay to fairly compensate the lender?
The Court's answer
The Court adopted the "formula approach": bankruptcy judges should start with the national prime interest rate and add a risk adjustment suited to the individual debtor's circumstances, rather than using the loan's original contract rate, a market rate for comparable loans, or the creditor's cost of borrowing.
This approach best fits the cramdown rule, which only requires that a creditor's deferred payments have a present value at least equal to its claim — not that the creditor be put in the same position it would have occupied outside bankruptcy. The formula method is simpler, more objective, and places the burden on creditors, who have better market information, to justify any higher rate — avoiding the costly, inconsistent evidentiary fights that plagued the other proposed approaches.
Curious how the Court got there? See the step-by-step legal reasoning →
Why it matters
People restructuring debts like car loans in Chapter 13 bankruptcy will typically pay lower, prime-based interest rates rather than their original high subprime rates, which can make repayment plans more affordable and easier to complete. Lenders who make subprime loans may recover less compensation for default risk, which could influence how they price future loans to financially strained borrowers.
What changes now
The case was sent back to the Bankruptcy Court to recalculate the interest rate on the secured claim using the formula approach the Court adopted, rather than the contract rate the Seventh Circuit had approved. This is a final merits decision that established the framework future bankruptcy courts must use nationwide for cramdown interest rates, though courts still must determine the appropriate risk premium on a case-by-case basis.
What this does not decide
The Court expressly left open exactly how large a risk-adjustment premium should be added to the prime rate, calling that a case-by-case question. It also did not command a five-justice majority for its reasoning: Justice Thomas concurred in the result on different, narrower grounds, so only a four-justice plurality endorsed the formula approach itself.
Concurrences and dissents
Concurrence — Justice Thomas
Justice Thomas agreed the debtors should win, but on narrower statutory grounds. He argued the cramdown statute requires only that the value of the property actually distributed match its present value using a risk-free discount rate, not that creditors be additionally compensated for the risk that the bankruptcy plan itself might fail. He would not require any general risk-adjustment method.
Dissent — Justice Scalia
Justice Scalia agreed a risk premium is legally required, but argued the majority's formula approach will systematically undercompensate creditors because starting from the low prime rate forces judges to guess at a risk premium with little reliable guidance. He would instead presume the loan's original contract rate accurately reflects market-assessed risk, adjustable only if a party proves it inaccurate.
How the Court got there
The legal reasoning, step by step
- The Court identified that the cramdown provision, 11 U.S.C. § 1325(a)(5)(B)(ii), requires only that deferred payments to a secured creditor have a 'present value' — their worth today, accounting for the time value of money and default risk — at least equal to the allowed claim, without specifying how to calculate the needed interest rate.
- The Court weighed three considerations: that similar Bankruptcy Code provisions use the same present-value language and should be interpreted consistently; that Chapter 13 expressly lets courts modify a secured creditor's loan terms because bankruptcy changes the risk profile; and that the cramdown inquiry is objective, aiming to treat similarly situated creditors alike rather than to make any one creditor whole.
- Applying those considerations, the Court rejected the coerced loan, presumptive contract rate, and cost of funds approaches because each required expensive, creditor-specific evidence about lending markets and aimed at replicating what a particular creditor could have gotten outside bankruptcy, rather than simply ensuring the debtor's payments equal present value.
- The Court adopted the formula approach instead: start with the national prime rate, a low-risk objective benchmark, and add a risk premium tailored to the debtor's circumstances, with the creditor bearing the burden of proving a higher premium is justified because creditors have better access to relevant market information.
- The Court declined to set the proper size of that risk premium, leaving it to case-by-case determination, but noted that if the needed rate would be so high that the plan could not realistically succeed, the correct response is to deny confirmation of the plan rather than inflate the interest rate.
Doctrinal impact
Cases affected by this decision
Reaffirms Associates Commercial Corp. v. Rash (520 U.S. 953)
The Court relied on Rash's assumption that cramdown interest rates should offset the risk of default to the extent possible.