In Re Lively
467 B.R. 884
Bankr. S.D. Tex.2012Background
- Philip Reed Lively, individual debtors, filed a Chapter 11 proceeding after converting from Chapter 13.
- Lively’s amended plan forecasted 7.38% payment to unsecured creditors, failing to pay them in full under §1129(b)(2)(B)(ii)(i).
- The plan would allow Lively to retain certain estate assets (mortgage note, railroad car leases, and a boat consignment lot).
- Creditors (unsecured) would receive a significantly reduced distribution over five years, with most assets retained by the debtor.
- The court previously held BAPCPA did not abrogate the absolute priority rule in individual Chapter 11 cases and denied confirmation; Lively appealed for direct certification to the Fifth Circuit.
- The issue presented is whether BAPCPA amended §1129(b)(2)(B)(ii) so that the absolute priority rule no longer applies to individuals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does BAPCPA abrogate the absolute priority rule in individual Chapter 11 cases? | Lively argues BAPCPA eliminates the absolute priority rule for individuals. | The court maintains the absolute priority rule remains in effect for individuals. | BAPCPA did not abrogate the absolute priority rule. |
| Does §1129(b)(2)(B)(ii) include all property under §1115 or only property added by §1115? | Lively advocates a broad interpretation that §1115 expands the estate to all property, exempting more from the absolute priority rule. | The court adopts a narrow interpretation that §1115 adds property to the estate, not the entire estate. | The phrase is unambiguous and means property added to the estate by §1115 (narrow interpretation). |
| If the plan fails the §1129(b)(2)(B)(i) requirement, can it still be confirmed under §1129(b)(ii)? | N/A (focuses on plan structure and allowable exemptions under §1115). | The plan does not provide for full payment to unsecured creditors under (i), so (ii) must apply; however, the plan still fails (ii) as drafted. | The plan does not satisfy §1129(b)(2)(B)(i) and, given the interpretations, cannot be confirmed. |
Key Cases Cited
- In re Kamell, 451 B.R. 505 (Bankr.C.D. Cal. 2011) (debtor-retention under §1115 and absolute priority debate in individual cases)
- In re Maharaj, 449 B.R. 484 (Bankr.E.D. Va. 2011) (post-BAPCPA absolute priority interpretations in individual cases)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (majority view that absolute priority remains under BAPCPA)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (supporting continued application of absolute priority in individuals)
- In re Shat, 424 B.R. 854 (Bankr. D. Nev. 2010) (broad interpretation of §1115 estate concept notable in literature)
- In re Roedemeier, 374 B.R. 264 (Bankr. D. Kan. 2007) (one of the leading minority views on §1115 breadth)
- In re Williams, 850 F.2d 250 (5th Cir. 1988) (mandatory independent duty to ensure §1129 standards are met)
- Lamie v. United States Trustee, 540 U.S. 526 (U.S. Supreme Court 2004) (plain-language approach to statutory interpretation)
- In re Kamell, 451 B.R. 505 (Bankr.C.D. Cal. 2011) (explicit discussion of §1115 interpretation relevance)