In re Maharaj
- Summarized by Dennis O'Dea , SFS Law Group
- 10 years 11 months ago
- In re: Maharaj, Case No. 11-1747 (4th Cir. June 14, 2012), slip opinion
- AFFIRMING the bankruptcy court's denial of confirmation of an individual Chapter 11 plan accepted by two classes of creditors, but rejected by a class of unsecured creditors, the court held, in a case of first impression in the circuit courts of appeal, that the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCA") did not abrogate the absolute priority rule as it applies to individual Chapter 11 debtors and that the plan could not be confirmed over the dissenting vote of a class of unsecured creditors if the debtors retained any non-exempt property under their plan which general creditors were not paid in full.
- Procedural context:
- Direct appeal to the Fourth Circuit Court of Appeals by the debtor from an order of the bankruptcy court of the Eastern District of Virginia denying confirmation of a plan for failing to satisfy the "fair and equitable" requirement under 11 U.S.C. § 1129(b)(2)(B)(ii) known as the "absolute priority" rule. This is the first Circuit Court opinion addressing whether the "absolute priority rule" was abrogated by BAPCA in an individual Chapter 11 reorganization case.
- The court viewed the issue before it as a "pure question of law" whether BAPCA abrogated the absolute priority rule in an individual Chapter 11 reorganization case under 11 U.S.C. §1129(b) (2) (B)(ii) and §1115 . The debtors’ plan was accepted by two voting classes, but rejected by a class of unsecured creditors in which only one creditor with a small claim rejected the plan. Since the plan allowed the debtors to retain non-exempt property while creditors were not paid in full, the plan would not satisfy the absolute priority rule if it applied. The court held that the language in 11 U.S.C. §1129(b) (2) (B)(ii) §1115 did not allow individual debtors to retain property of the estate under their plan while general creditors were not paid in full.
- Before Duncan, Agee and Diaz, Circuit Judges. Opinion by Judge Agee in which Judge Duncan and Judge Diaz joined
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