In re Gerard
495 B.R. 850
Bankr. E.D. Wis.2013Background
- Debtors filed a Chapter 11 petition on February 2, 2012.
- A confirmation hearing was held on July 11, 2013, with Gerard objections based on good faith, projected disposable income, and absolute priority.
- Court found Norman Cerk's $160,000 claim was a gift, not a loan, and could be treated via objection and dividend reallocation if disallowed.
- Court directed disclosure of tax returns and adjustments to projected disposable income, including payments to unsecured creditors if income exceeded a 10% threshold.
- Absolute priority issue, though held in advisement, concluded that plan could not be confirmed without meeting the absolute priority rule and new value requirements.
- Court adopted a narrow interpretation of BAPCPA amendments, held exempt property may be retained, but plan must provide new value to satisfy the absolute priority rule.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether §1115(b) abrogates the absolute priority rule for individuals. | Gerard: broad view abrogates rule via §1115(b). | Debtors: no abrogation; narrow view applies. | Abrogation rejected; narrow view adopted. |
| Whether the debtor may retain exempt property without violating the absolute priority rule. | Gerard: exempt property retention violates priority. | Debtors: exempt property may be retained. | Exempt property retention permissible; does not offend the rule. |
| Whether the plan can be confirmed when non-exempt property remains and new value is required. | Gerrards: plan requires new value from sources other than debtors; non-exempt property cannot be retained without new value. | Debtors: new value not adequately provided; plan may fail. | Plan cannot be confirmed without new value equal to or greater than non-exempt property. |
| Whether the plan complies with good faith and projected disposable income requirements. | Gerrards argued failure to show good faith and accurate disposable income. | Debtors: initially addressed through plan amendments and conditions at hearing. | Issues remain to be addressed in a modified plan; not confirmed as is. |
Key Cases Cited
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (U.S. Supreme Court (1988)) (absolute priority rule applicable to individuals)
- In re Stephens, 704 F.3d 1279 (10th Cir. 2013) (broad vs narrow views of §1115/1129 in individual cases)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (narrow reading of 1115/1129(2)(B) held controlling)
- In re Henderson, 321 B.R. 550 (Bankr. M.D. Fla. 2005) (three components of absolute priority; exemptions not estate property post-exemption)
- In re Draiman, 450 B.R. 822 (Bankr. N.D. Ill. 2011) (new value exception to absolute priority; difficult to satisfy for individuals)
- Hamilton v. Lanning, 560 U.S. 505 (Supreme Court (2010)) (do not read Bankruptcy Code to erode past practice absent clear indication)