MERCHANTS BANK v. Goodyear, 22 F. Supp. 2d 309 (D. Vt. 1997)

Christopher O'Connor Reis, Hull, Webber & Reis, Rutland, VT, for Merchants Bank, (secured creditor), appellant.

Michael Paul Palmer, Palmer Legal Services, Middlebury, VT, for Gilbert Ross Goodyear, (debtor), appellee.

MURTHA, Chief Judge.

The instant appeal involves Merchants Bank's objection to the interest rate provided in the debtors' Plan of Reorganization. The sole issue for the Court's review is "Whether the interest rate provided Merchants Bank under the Confirmed Chapter 12 Plan imposed by the Court is appropriate under 11 U.S.C. Section 1225(a) (5)." See Appellant's Designation of Items (paper 2).

Pursuant to his policy as set forth in In re Smith, 178 B.R. 946 (Bankr.D.Vt.1995), Judge Conrad apparently imposed, without any premium, the interest rate prevailing on the United States Treasury instrument closest in maturity as of the plan confirmation hearing date. However, subsequent to Judge Conrad's decision in the instant case, the Second Circuit examined the imposition of interest under an analogous section of the Bankruptcy Code and held: "Because the rate on a treasury bond is virtually risk-free, the § 1325(a) (5) (B) (ii) interest rate should also include a premium to reflect the risk to the creditor in receiving deferred payments under the reorganization plan." In re Valenti, 105 F.3d 55, 64 (2d Cir. 1997).

Accordingly, the instant matter is REMANDED to the Bankruptcy Court for reconsideration in light of In re Valenti and for recalculation of the interest rate based upon the principles set forth in that decision.

SO ORDERED.