00-4167 In re: Till

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“Like the Third Circuit, see GMAC, 999 F.2d at 69, and the Fifth Circuit, see Smithwick, 121 F. 3d at 214, we believe that to exclude the element of profit from the fixing of the market rate would violate the statutory directive that the creditor be placed in the same position as the one in which it would have been if it had been allowed to end the lending relationship by repossessing the collateral.

“By determining the rate that the creditor in question would obtain in making a new loan in the same industry to a debtor who is similarly situated, although not in bankruptcy, see GMAC, 999 F.2d at 67 n.4, we acknowledge that we are approximating, not necessarily duplicating precisely, the present value of the collateral to the creditor as that statute requires. The continuation of the old contract rate to the bankrupt debtor under the supervision of the bankruptcy court will involve some risks that would not be incurred in a new loan to a debtor not in default and also result in some economies. Nevertheless, like our colleagues in the Third Circuit, see GMAC, 999 F. 2d at 68-69, and Fifth Circuit, see Smithwick, 121 F.3d at 214, we believe that the old contract rate will yield a rate sufficiently reflective of the value of the collateral at the time of the effectiveness of the plan to serve as a presumptive rate. Therefore, ‘[i]n the absence of a stipulation regarding the creditor’s current rate for a loan of similar character, amount and duration, we believe it would be appropriate for bankruptcy courts to accept a plan utilizing the contract rate if the creditor fails to come forward with persuasive evidence that its current rate is in excess of the contract rate. Conversely, utilizing the same rebuttable presumption approach, if a debtor proposes a plan with a rate less than the contract rate, it would be appropriate for a bankruptcy court to require the debtor to come forward with some evidence that the creditor’s current rate is less than the contract rate.’ GMAC, 999 F.2d at 70-71. The approach we endorse today will, in most cases, provide the best approximation of the proper rate.”

Vacated and remanded.

Appeal from the United States District Court for the Southern District of Indiana, McKinney, J., Ripple, J.