In Re Maharaj
449 B.R. 484
Bankr. E.D. Va.2011Background
- Debtors Ganess and Vena Maharaj operate D&V, an auto body business, and reside on the Poland Road property in Chantilly, VA.
- They financed expansion with a large loan secured by the Poland Road Property and a Commercial Property, leading to multiple liens and a complex encumbrance chain.
- Access National Bank holds the first deed of trust on the Poland Road Property; DB Structured Products holds a substantial subordinate lien.
- Fraudulent activity by FMI and Taneja created a web of original and duplicate notes, later settled in FMI’s bankruptcy and restructured through project financing.
- Debtors filed a Chapter 11 petition on July 21, 2009 and propose a plan that would classify claims into secured/unsecured classes, including a plan to strip off certain subordinate liens being contested by a creditor class that would receive little to no recovery.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the absolute priority rule applies to individual Chapter 11 cases after BAPCPA. | Maharaj argues BAPCPA eliminated the rule; §1115 expands the estate to post-petition property. | DB Structured Products asserts the rule remains intact. | Absolute priority rule continues to apply. |
| Whether the plan may strip off the subordinate lien of DB Structured Products. | Plan treats DB Structured Products as unsecured to enable cram-down. | Lien may be stripped only if full payment to unsecured creditors occurs. | Strip-off not permitted; plan cannot be confirmed. |
| Whether the plan satisfies cram-down feasibility given disposable income constraints. | Plan provides some recovery to unsecured creditors over a 60-month horizon. | Dispositive requirement fails because non-exempt property retained deprives unsecureds of full recovery. | Not met; plan not confirmable. |
Key Cases Cited
- In re Regional Building Systems, Inc., 254 F.3d 528 (4th Cir. 2001) (lien may be extinguished by plan confirmation in Chapter 11 when appropriate)
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (debtor's absolute priority rule interpretation post-BAPCPA split; court declined to abolish the rule)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (alternative view that absolute priority persists for individual debtors)
- In re Gbadebo, 431 B.R. 222 (Bankr. N.D. Cal. 2010) (alternative view on post-BAPCPA treatment of absolute priority)
- In re Karlovich, B.R. (Bankr. S.D. Cal. 2010) (concurring analysis on BAPCPA amendments and absolute priority)
- In re Walsh, 447 B.R. 45 (Bankr. D. Mass. 2011) (post-BAPCPA interpretation of absolute priority)