Wells Fargo is complaining about the plan confirmation order's treatment of its secured debt. A chapter 12 bankruptcy plan may modify the rights of secured creditors provided that the plan complies with 11 U.S.C. § 1225(a)(5).Travelers Ins. Co. v. Bullington, 878 F.2d 354, 357 (11th Cir. 1989). The plan in this case must comply with the "cramdown" provisions of § 1225(a)(5) because Wells Fargo has not accepted the plan and the Grigsbys do not intend to surrender the collateral.
The United States Court of Appeals for the Eleventh Circuit recently considered the present value requirements of section 1225(a)(5)(B)(ii) of the Bankruptcy Code. In Travelers Insurance Co. v. Bullington, [ 878 F.2d 354 (11th Cir. 1989)], the court stated: "`Value' must be determined objectively. Simply because a creditor subjectively would not extend a mortgage on the same terms does not mean that objectively the mortgage does not have a given value.
Thus, the Fifth Amendment protects a creditor's rights only to the extent of its interest in the collateral as that interest is defined by the bankruptcy laws. See Travelers Ins. Co. v. Bullington, 878 F.2d 354, 359 (11th Cir. 1989) (citing Wright v. Union Central Life Ins. Co., 311 U.S. 273, 278, 61 S.Ct. 196, 199-200, 85 L.Ed. 184 (1940)). When, as here, the creditor has no interest in the collateral, it cannot claim any protection under the Fifth Amendment.
"In the fall of 1986, the Congress enacted what became Chapter 12 of the Bankruptcy Code. This legislation created a special form of bankruptcy designed specifically for farmers and intended to meet a perceived crisis in the agricultural community." Travelers Ins. Co. v. Bullington, 89 B.R. 1010, 1010 (M.D.Ga. 1988) (citation omitted), aff'd, 878 F.2d 354 (11th Cir. 1989) ("Congress enacted Chapter 12 of the bankruptcy code to provide special relief for family farmers"). As one court has explained:
Simply because a creditor subjectively would not extend a mortgage on the same terms does not mean that objectively the mortgage does not have a given value." Travelers Ins. Co. v. Bullington, 878 F.2d 354, 358 (11th Cir. 1989). "Balloon payments are commonly part of chapter 12 plans[, and c]ourts that have considered balloon payments, and the need to refinance to make those payments, have looked at the probability of successfully refinancing, particularly by evaluating the existing equity in the property and projected equity at the time of refinancing."
"[T]he test is simply whether, as of the effective date of the plan, the present value of the property distributed — i.e., the new thirty-year mortgage — is equal to or greater than the amount of the allowed secured claim." Travelers Ins. Co. v. Bullington, 878 F.2d 354, 357 (11th Cir. 1989). Section 1222 of the Bankruptcy Code outlines mandatory and permissive provisions for Chapter 12 plans including a provision for payment of future earnings to the trustee, payment in full of all priority claims, and equal treatment of claims within each class.
Two other Eleventh Circuit cases deal with this language, but these cases do not address the method for calculating the interest rate. See Foster Mortgage Corp. v. Terry (In re Terry), 780 F.2d 894 (11th Cir. 1986); Travelers Ins. Co. v. Bullington, 878 F.2d 354 (11th Cir. 1989). The appropriate discount [interest] rate must be determined on the basis of the rate of interest which is reasonable in light of the risks involved.
The Courts which specifically have addressed the permissibility of stretching out repayments to secured creditors almost unanimously allow for some stretching. See, e.g., Travelers Ins. Co. v. Bullington, 878 F.2d 354, 356-58 (11th Cir. 1989); In re Mulberry Agr. Enterprises, Inc., 113 B.R. 30, 32-33 (D.Kan. 1990); In re Miller, 98 B.R. 311, 312 (Bankr.N.D.Ohio 1989); In re Bluridg Farms, 93 B.R. at 654; In re Billman, 93 B.R. at 660; In re Snider Farms, Inc., 83 B.R. 977, 999 (Bankr.N.D.Ind. 1988). The specific question here, however, is whether stretching the repayment term from the 10 year term remaining on the original note to a 30 year term under the plan comports with the Fisher court's observation that § 1225(a)(5)(B) was intended to "insure creditors fair repayment."
Wright v. Union Central Life Insurance Co., 311 U.S. 273, 278, 61 S.Ct 196, 200, 85 L.Ed. 184, 187 (1940) reh'g denied, Wright v. Union Central Life Insurance Co., 312 U.S. 711, 61 S.Ct 445, 85 L.Ed. 1142 (1941). See, Travelers Ins. Co. v. Bullington, 878 F.2d 354, 358-360 (11th Cir. 1989) (§ 506 application to reduce under-secured creditor's allowed claim to value of collateral for purposes of § 1225(a)(5) withstands Fifth Amendment challenge), reh'g denied en banc, Travelers Ins. Co. v. Bullington, 889 F.2d 276 (11th Cir. 1989); Dahlke v. Doering, 94 B.R. 569, 571-72 (D.Minn. 1989) ( 11 U.S.C. § 1225's authorization of a reduction of secured claim to appraised market value of collateral is not an unconstitutional taking of secured creditor's property in violation of Fifth Amendment). We conclude from Vinton, Union Central, Bullington, and Dahlke that a Bankruptcy Court may determine and limit the value of an over-secured or under-secured creditor's interest in collateral without violating the Fifth Amendment.
Courts have recognized that "Chapter 12 was enacted as an emergency response to a then-existing farm debt crisis." Travelers Ins. Co. v. Bullington, 878 F.2d 354, 360 (11th Cir. 1989). "Congress intended the family farmer provisions to be novel, but short-lived.