Anderson v. Hancock

In 2011, William Anderson and Danni Jernigan (debtors) purchased a house from Wayne and Tina Hancock (creditors). The purchase was financed by a $255,000 loan from the Hancocks. Anderson and Jernigan promised to pay the Hancocks $1,368.90 per month for 30 years, which was based on a 5 percent interest rate. The promissory note provided that if Anderson and Jernigan ever failed to make a payment within 30 days of the due date, they would be considered in default, and their interest rate would increase to 7 percent for the remaining term of the loan. Anderson and Jernigan failed to make their April 2013 payment. In May 2013, the Hancocks informed Anderson and Jernigan that they were in default and that their future payments needed to reflect the 7 percent interest rate. Anderson and Jernigan did not submit further payments, and the Hancocks started foreclosure proceedings in August 2013. Anderson and Jernigan filed a chapter 13 bankruptcy petition in September 2013, which automatically stayed the foreclosure. Anderson and Jernigan submitted a chapter 13 plan that proposed to pay their prepetition arrearage to the Hancocks based on a 5 percent interest rate. The plan also proposed postpetition payments based on a 5 percent interest rate. The Hancocks objected, asserting that the arrearage from June 2013 forward and the postpetition payments should be calculated using the 7 percent default interest rate specified in the promissory note. Anderson and Jernigan argued that the Bankruptcy Code allows a bankruptcy plan to provide for cure of the debtor’s default. They contended that curing their default meant restoring the pre-default conditions, including the pre-default interest rate. Both the bankruptcy court and federal district court rejected Anderson and Jernigan’s cure argument. Anderson and Jernigan appealed to the United States Court of Appeals for the Fourth Circuit.