In re Lively

Summarized by Bruce Weiner , Rosenberg, Musso & Weiner
12 years 9 months ago

Citation:

2013 WL 2347045

Tag(s):

Ruling:

AFFIRMING the Bankruptcy Court, the Fifth Circuit followed the 10th and 4th Circuits in holding that the absolute priority rule applies in individual chapter 11 cases. The absolute priority rule states that a chapter 11 plan is fair and equitable and can be confirmed with respect to a dissenting class only if no junior class retains any property, except individual debtors may retain property included in an estate under Section 1115. The exception for individual debtors was added by the 2005 amendments to the Bankruptcy Code. The Circuit adopted the narrow interpretation of the individual debtor exception in Section 1129(b)(2)(B)(ii) by holding that this means that the only property that an individual debtor may retain without violating the absolute priority rule is post petition earnings and property acquired after the commencement of the case. The court rejected the broad interpretation by some courts which allowed individual debtors to retain all of their property without violating the absolute priority rule. The 5th circuit held that the narrow interpretation is correct and that to find otherwise would negate the absolute priority rule, a rule that has been an important part of chapter 11 cases for more than 100 years.

Procedural context:

Certified appeal directly from the Bankruptcy Court pursuant to 28 U.S.C. §158(d)(2)(A)(i) and (ii).

Facts:

The Debtor filed a chapter 13 case, but converted the case to one under chapter 11 because he was over the debt ceiling for chapter 13 cases. The debtor proposed a chapter 11 plan that would allow him to keep all of his assets, including assets he had as of the commencement of the case. A majority of unsecured creditors rejected the plan and the debtor sought confirmation by cram down of the dissenting class. The bankruptcy court denied confirmation, holding that the debtor's plan violated the absolute priority rule because the debtor, a junior class to unsecured creditors, would be retaining pre-petition assets. The debtor appealed to the Fifth Circuit.

Judge(s):

Jones, Dennis & Higginson. Judge Edith Jones wrote the opinion.

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