Lessons From Chapter 13 – When Is 8% Not Really 8%

In ruling on a very unfortunate situation (more on that below), Judge Shannon issued an opinion on July 24, 2014 in the Aro bankruptcy, holding that a state court decision concerning the validity of a lien cannot be challenged in Bankruptcy Court. In the opinion in this case issued on January 22, 2015 (the “Opinion”), Judge Shannon analyzed the value of the lien and applicable interest rates. The Opinion is available here.

Background

In 1989 Charles W. Aro signed a mortgage on his personal residence as security for a lease of commercial laundry equipment. After falling on hard times, Aro filed for Chapter 13 bankruptcy in 1994. The laundry equipment, originally purchased for $40,000, was sold for $28,000, leaving Aro’s lender with a secured deficiency claim of $12,000.