Do I Have To Pay Interest On My Unsecured Debt In Bankruptcy?

In the Northern District of Illinois a debtor is not required to pay interest on unsecured debt in a chapter 13 case, based on a ruling by Judge John H. Squires. The bankruptcy code “does not mandate” payment of interest to unsecured claims, says Judge Squires. A debtor is required to satisfy the means test in 1325(b)(1) by committing payment of projected disposable income based on the definition of current monthly income. However, unsecured claims are satisfied upon payment of the face amount without interest, regardless whether money is available to pay a premium during a five year plan. Compare this decision with

one issued by Judge Robert N. Opel II in the Middle District of Pennsylvania three months earlier. Judge Opel ruled that in order to confirm a plan the debtor must pay all of the projected disposable income under 1325(b)(1) during the applicable commitment period. When the total amount of that payment exceeds the face value of the unsecured claims, those claims are entitled to interest. Judge Opel determined that 1325(b)(1) requires that the value of payment shall not be less than the amount of the claim. He interpreted that to mean the time value of money at the present is worth more when paid out over the course of a case, thus, interest is appropriate to fully compensate the claim.

Other courts have yet to chime in. As trustees across the country push the issue, more decisions will follow.