In re Brown
498 B.R. 486
Bankr. E.D. Pa.2013Background
- Debtors filed Chapter 11; movants seek dismissal under 11 U.S.C. §1112(b)(1)
- Debtors propose amended Chapter 11 plan funded by debtor’s ongoing business income; creditors dispute feasibility
- Plan seeks to place unsecured claims in class 6 with $15,000 per year over five years; Ferroni’s claim remains unresolved
- Debtors retain interests in Design Associates, Design Build, and Build US; post-petition earnings and exempt property implications are central
- Court concludes absolute priority rule remains applicable to individuals post-BAPCPA and orders dismissal of the case
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does BAPCPA eliminate the absolute priority rule for individual debtors? | Debtors argue 2005 amendments abolished AP rule for individuals | Movants argue AP rule remains in force | AP rule preserved for individuals; dismissal warranted if no feasible plan under 1129(b) |
| Can debtors confirm a plan under 1129(b) despite Ferroni’s vote and 1129(a)(10) requirements? | Debtors claim potential plan could be confirmed with at least one impaired class’s vote | Ferroni’s claim blocks essential voting; no feasible plan fits 1129(b)(2)(ii) fair and equitable | No feasible plan that complies with 1129(b)(2)(ii) and 1129(a)(15); dismissal appropriate |
| Do the debtors meet the good faith requirement of 1129(a)(3)? | Omissions were immaterial or cured; good faith shown | Omissions in schedules and financials undermine good faith | Court finds debtors may propose a plan meeting 1129(a)(3) based on totality of circumstances |
| Is dismissal proper under 1112(b)(1) given inability to reorganize? | Inability to reorganize supports dismissal | Dismissal appropriate where feasible reorganization unlikely and no better alternative | Dismissal warranted; 1112(b)(2) inapplicable; case to be dismissed and limited on filing further cases |
Key Cases Cited
- In re American Capital Equipment, LLC, 688 F.3d 145 (3d Cir.2012) (confirmability; totality-of-the-circumstances approach to good faith)
- Bank of Am. Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle St. P’ship, 526 U.S. 434 (1999) (absolute priority rule explained; cram-down framework)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (absolute priority rule applicable to individuals pre-BAPCPA; new value considerations explained)
- In re Lively, 717 F.3d 406 (5th Cir.2013) (treatment of exempt property under 1129(b)(2)(ii) post-BAPCPA; narrow vs broad views)
- In re Karlovich, 456 B.R. 677 (Bankr.S.D.Cal.2010) (interpretation of 1115/1129 linkage; preservation of absolute priority)