In Re Karlovich
456 B.R. 677
Bankr. S.D. Cal.2010Background
- SDCCU seeks relief from automatic stay to nonjudicially foreclose on debtor's Knoll Road property; value stipulated at $1.33 million while debt exceeds $2.8 million.
- Debtor proposes to strip down undersecured debt by approximately $1.477 million and treat it as unsecured, arguing the Knoll Road property is not necessary for reorganization.
- Dispute centers on whether the absolute priority rule applies to individual Chapter 11 debtors post-BAPCPA; debtor contends it does not, SDCCU contends it does.
- §1115 added by BAPCPA expands property of the estate for individuals to include post-petition acquisitions and earnings, potentially affecting absolute priority analysis.
- Court must interpret §1129(b)(2)(B)(ii) in light of §1115 to determine if the absolute priority rule is abrogated or preserved for individuals; plan feasibility hinges on this interpretation.
- Court analyzes statutory scheme to determine if there is a plain, unambiguous reading that the absolute priority rule remains in force for individuals under BAPCPA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the absolute priority rule apply to individual Chapter 11 debtors after BAPCPA? | SDCCU argues it does not apply to individuals. | Karlovich argues it does apply. | Applied; absolute priority rule remains in force for individuals. |
| What is the effect of §1115 on the estate for individuals regarding the absolute priority rule? | §1115 expands estate to post-petition property, affecting priorities. | No abrogation; §1115 property is treated within absolute priority constraints. | §1115 does not abrogate; it aligns individual treatment with pre-BAPCPA rules under §1129(b)(2)(B)(ii). |
Key Cases Cited
- In re Gbadebo, 431 B.R. 222 (Bankr.N.D. Cal. 2010) (discusses pre-BAPCPA absolute priority rule and §1115 interaction)
- In re Roedemeier, 374 B.R. 264 (Bankr.D. Kan. 2007) (ambiguous readings of §1129(b)(2)(B)(ii) and §1115 potential interpretations)
- In re Shat, 424 B.R. 854 (Bankr.Nev. 2010) (contemporary approach to absolute priority in individuals)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (supporting interpretation of absolute priority intact for individuals)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (contemporary stance on BAPCPA and absolute priority)