In Re Stephens
445 B.R. 816
Bankr. S.D. Tex.2011Background
- Debtor Joseph A. Stephens, Jr. filed a voluntary Chapter 11 petition on February 16, 2010.
- Debtor operates an insurance agency and a mortgage brokerage; owns multiple real properties listed on schedule A.
- Property at 1509 Wentworth St. valued at $288,024 with secured debts to America's Servicing Co. ($303,210.65) and GMAC Mortgage ($55,115.63).
- Plan proposes to pay America’s Servicing Co. $159,000 at 5.5% and treat GMAC unsecured.
- Property at 4001 Nasa Rd. 1, Seabrook, TX valued at $108,083; taxes claims secured; plan pays taxes in full over 50 months.
- Plan surrenders 4408 La Branch St. to FDIC as receiver for Sanderson State Bank and reduces two Binz Street properties’ values and debts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the plan satisfies 1129(a)(8) regarding class acceptance | Class 4 lacks sufficient acceptance (only two votes for, one against). | Plan may nonetheless be confirmed under 1129(b) if fair and equitable. | Plan does not satisfy 1129(a)(8); not all impaired classes accept. |
| Whether the plan can be confirmed under 1129(b) despite 1129(a)(8) | N/A or not clearly stated; focus on absolute priority implications. | Debtor seeks cramdown of unsecureds under 1129(b) if fair and equitable. | Not necessary to analyze cramdown; plan fails absolute priority under later analysis. |
| Whether 1115(a) abrogates the absolute priority rule for an individual debtor | Plaintiff argues 1115(a) abrogates absolute priority by including post-petition property and earnings. | Absolute priority not abrogated; 1115(a) does not broaden 541-based property to defeat priority. | Court agrees absolute priority is not abrogated. |
| Whether retention of non-exempt property violates 1129(b)(2)(B)(ii) | Trustee or creditors contend plan preserves non-exempt property without full payment. | Debtor argues reasonable distribution and value preservation under plan. | Plan violates 1129(b)(2)(B)(ii) by retaining non-exempt property while paying less than full amount to unsecureds. |
Key Cases Cited
- In re Tegeder, 369 B.R. 477 (Bankr. D. Neb. 2007) (supports view that 1115(a) can affect absolute priority)
- In re Roedemeier, 374 B.R. 264 (Bankr. D. Kan. 2007) (discusses 1115(a) impact on absolute priority)
- In re Shat, 424 B.R. 854 (Bankr. Nev. 2010) (addresses 1115(a) and absolute priority in individual debtors)
- In re Gbadebo, 431 B.R. 222 (Bankr. N.D. Cal. 2010) (holds absolute priority not abrogated by 1115(a))
- In re Mullins, 435 B.R. 352 (Bankr. W.D. Va. 2010) (supports non-abrogation view of absolute priority)
- In re Gelin, 437 B.R. 435 (Bankr. M.D. Fla. 2010) (rejects abrogation of absolute priority by 1115(a))