Matter of Depew
DECISION
This case was filed under Chapter 11 of the United States Bankruptcy Code on May 31, 1984. On May 4, 1988, the court confirmed debtors’ proposed plan. Confirmation operated as a discharge of debtors’ pre-petition obligations.
Debtors filed a final report and application for final decree on July 7, 1989. The report represents that the initial payments to creditors, funded out of the confirmation deposit, have been made. It also identifies the various periodic payments debtors are required to make to the different creditor classes under the terms of the plan. Notice of the final report was issued to all creditors for an opportunity to object.
Objections to the final report were filed on behalf of both the Farmers Home Administration and The Community State Bank. These creditors object because the debtors have failed to make the periodic payments due them, as required by the terms of the confirmed plan, on account of both their secured and unsecured claims. Based upon this default, the FmHA also filed a motion to dismiss this case, pursuant to
Both the final report and the objections to it, together with the motion to dismiss, came before the court for a hearing, at which the court heard the representations and arguments of counsel. Debtors do not dispute their failure to make the periodic payments due FmHA and Community State Bank, as called for by the plan. They do not deny that they are in default in their obligations under this plan. The court finds this default to be a material one. As a result, the motion to dismiss is well-taken.
■ At the hearing, the FmHA asked the court to go beyond the mere dismissal of this case and also revoke the order confirming the plan and with it debtors’ discharge.
1
See
The first deficiency with the additional relief the FmHA has requested is a procedural one. Bankruptcy Rule 7001(4) & (5) specifically requires the initiation of an adversary proceeding in order to revoke both the discharge and an order confirming a plan. This type of relief is not available through the less formal proceedings on “contested matters” which are currently before the court. Thus, even if the request were well taken, this matter is not in a posture which would permit the court to act.
Although an order of confirmation can be revoked, and in doing so the court is also required to revoke the debtor’s discharge, the opportunities for this are quite limited. Revocation of a confirmation order is governed by
The first requirement for obtaining this relief is that it must be sought “before 180 days after the entry of the order of confirmation.”
Beyond the issues associated with the timeliness of revocation of confirmation, it is also factually deficient. Revocation of confirmation is a drastic remedy. As a result, this relief is available only where the order of confirmation is obtained through fraud.
There' has been no suggestion or argument that confirmation of debtors’ proposed plan was obtained by fraud. Instead, we are confronted only with the situation in which subsequent events have demonstrated that the debtors are not able to fulfill the obligations the confirmed plan has imposed upon them. The inability to fulfill a confirmed plan is very different from having obtained confirmation through fraud. It does not justify revocation of the confirmation order.
In re Errington,
So long as the order of confirmation stands, it must have the effect given it by the Bankruptcy Code — binding both debtors and creditors to its terms and discharging debtors’ pre-petition obligations.
See In re Jersey Island Packing Co., supra,
DECISION ON MOTION TO ALTER OR AMEND
When the Code, its legislative history or the commentators to date discuss what should happen in the event a Chapter 11 reorganization fails, the universe of available options seems to comprise either conversion to Chapter 7 or liquidation within the existing Chapter 11 case. In re Jartran, Inc.,886 F.2d 859 , 866 (7th Cir.1989) (emphasis original).
The physical laws which operate in the alternate universe of post-confirmation dismissal have rarely been considered. Consequently, “[a]mong the many complicated and unanswered questions regarding post-confirmation dismissal is the effect upon secured creditors whose claims were impaired in the confirmed plan.” David A. Lander and David A. Warfield, A Review and Analysis of Selected Post-Confirmation Activities in Chapter 11 Reorganizations, 62 Am.Bankr.L.J. 203, 229 (1988). This case requires the court to consider these questions.
On May 4, 1988, the court confirmed a Chapter 11 plan which had been proposed by the debtors. The order of confirmation was submitted jointly by debtors and the Farmers Home Administration and incorporated an earlier stipulation concerning the treatment of that creditor’s claim. The plan impaired the rights of the FmHA. Its secured claims were established at a total of $174,000.00, with the remaining amounts due to be treated as an unsecured claim.
By an order of October 20, 1989, the case was dismissed because of debtors’ material default with respect to the confirmed plan.
See
The case was dismissed on the motion of the FmHA. At the dismissal hearing, the FmHA asked the court to go beyond the simple act of dismissal and, in doing so, also revoke the order of confirmation and debtors’ discharge. Although the motion to dismiss was granted, we declined to grant the additional relief the FmHA had requested, for the reasons discussed in the decision of October 20, 1989.
This matter is now before the court on the FmHA’s motion to alter or amend the order and decision of October 20, 1989. The motion questions that part of the decision which declined to revoke the order of confirmation and debtors’ discharge. The FmHA does not directly take exception to the procedural and statutory concerns originally addressed by the court. Instead, it argues that the post-confirmation dismissal of a Chapter 11 also vacates or revokes the order of confirmation as a matter of law, pursuant to
(a) Unless the court, for cause, orders otherwise, the dismissal of a case under this title does not bar the discharge, in a later case under this title, of debts that were dischargeable in the case dismissed; nor does the dismissal of a case under this title prejudice the debtor with regard to the filing of a subsequent petition under this title, except as provided in section 109(f) of this title.
(b) Unless the court, for cause, orders otherwise, a dismissal of a case other than under section 742 of this title—
(1) reinstates—
(A) any proceeding or custodianship superseded under section 543 of this title;
*969 (B) any transfer avoided under section 522, 544, 545, 547, 548, 549, or 724(a) of this title, or preserved under section 510(c)(2), 522(i)(2), or 551 of this title; and
(C) any lien voided under section 506(d) of this title;
(2) vacates any order, judgment, or transfer ordered, under section 522(i)(l), 542, 550, or 553 of this title; and
(3) revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case under this title.11 U.S.C. § 349 .
In advancing its position, the FmHA relies primarily upon paragraphs (b)(1)(C) and (b)(2) of this portion of the Bankruptcy Code. It argues that dismissal operated to vacate the order of confirmation (
There is a certain appeal to the FmHA’s arguments, especially when compared to the effect of a dismissal in traditional litigation. It is somewhat incongruous to think that notwithstanding the dismissal of a Chapter 11 both debtors and creditors would continue to be bound by the terms of a confirmed plan. Yet, bankruptcy proceedings, particularly Chapter 11 reorganizations, are not like traditional litigation where the entry of judgment resolves the disputes between the parties and ends the case. In Chapter 11, confirmation of a plan is the penultimate event, the reason for which the proceedings were begun. It is the final judgment. Theoretically, following confirmation, the reorganized and revitalized debtor emerges from bankruptcy “capable of sailing forth in the cold, cruel business world with[out] ... the protective wraps of the federal Bankruptcy Court.”
In re Seminole Park and Fairgrounds, Inc.,
The Bankruptcy Code is not a fragmented and disconnected collection of miscellaneous rules. It is a complex tapestry of ideas. The colors and patterns that are woven into its fabric combine to compliment and reinforce each other, in order to create a single unifying theme — the equitable treatment of creditors and financial relief for over-burdened debtors. In doing so, the tensions between these seemingly inconsistent objectives have been balanced and harmonized. Consequently, Title ll’s various provisions should not be viewed in isolation. Instead, their interpretation should reflect the interplay between all of its different parts, so that the Bankruptcy Code can operate as a coherent whole. The meaning given to any one portion must be consistent with the remaining provisions of the Bankruptcy Code.
There is nothing new or unique about this perception. It is merely a recognition of the fundamental principle of statutory construction which requires that a statute be interpreted in a way that will give effect to all of its different parts.
Commissioner v. Engle,
In advancing its position, the FmHA points to the legislative history behind
While it may have been Congress’ general intention that dismissal would undo a bankruptcy, the legislative history indicates that Congress did not see dismissal as completely unwinding everything that had ever occurred. This is clearly apparent from the equivocal language used by the committee in describing the operation of
This realization is supported by the legislative history to
Of course, this subsection refers only to pre-discharge dismissals. If the debtor has already received a discharge and it is not revoked, then the debtor would be barred under section 727(a) from receiving a discharge in a subsequent liquidation for six years. Id. at 68.
Thus, at least where the discharge is concerned, Congress recognized that the dismissal of a case was not the equivalent of revocation. Congress saw dismissal and revocation as two separate events and acknowledged that the dismissal of the bankruptcy did not automatically carry with it the revocation of a discharge which was previously granted. Dismissal was not intended to provide an avenue by which the restrictions upon revocation of a discharge could be avoided. Consequently, notwithstanding dismissal, a discharge continues to be effective and will limit the opportunity for subsequent relief under title 11.
See
The operation of
It is confirmation of a Chapter 11 plan that discharges the debtor from its obligations.
What
The nature of the different sections of the Bankruptcy Code specifically referenced in
It is noteworthy that
The proper reading of
One of the consequences of confirmation is the impact of a plan upon the bankruptcy estate. Except as provided in the plan, all property of the estate is vested in the debt- or upon confirmation, to be dealt with and held free and clear of the claims and interests of pre-petition creditors.
Once a plan of reorganization is confirmed, the bankruptcy estate ceases to exist unless the plan specifically provides otherwise, and all estate property revests in the debtor subject to the terms and conditions imposed by the plan. In re Grinstead,75 B.R. 2 , 3 (Bankr.D.Minn.1985). See also In re Air Center, Inc.,48 B.R. 693 , 695 (Bankr.W.D.Okla.1985).
Neither debtors’ confirmed plan nor the order of confirmation attempted to restrict the effect of confirmation, in any way, where property of the estate is concerned. Thus, upon confirmation the Chapter 11 estate ceased to exist. By virtue of
Since the bankruptcy estate ceased to exist upon confirmation, there was no longer any property of the estate as to which
This reading of
Following confirmation, there is a great need for finality in a reorganized debtor’s affairs. This need is fulfilled through
A failing debtor who finds sufficient favor with his creditors to effect a composition under the act is thereby, in the opinion of every business man, rehabilitated, with a markedly diminished mass of liabilities. He is encouraged to go on, to obtain new credit and incur new indebtedness. If thereafter that occurs which has occurred in this case, and the debtor finds himself unable to pay both the installments of his old indebtedness represented by composition notes, and his obligations to new and confiding creditors, it is not in accord with the spirit of the act or the business sense of business men that the property which he has accumulated on his new credit should be devoted to the payment of an indebtedness which his new creditors had good reason to believe was discharged by the earlier bankruptcy. The ruling now demanded *973 would practically require every creditor of a person who had made a composition on time to count as a possible creditor for the full amount every one who had come into the composition. In re Mirkus,289 F. 732 , 736 (2nd Cir.1923).
Such “uncertainty ... would render meaningless the whole purpose of a Chapter [11] proceeding.”
Matter of Newport Harbor Associates,
To construe the post confirmation dismissal of a Chapter 11 as also revoking or vacating the order of confirmation would not only undermine the finality Congress sought to give to confirmation but also the carefully delineated means by which an order of confirmation can be formally revoked. In
Congress directly confronted the circumstances which it felt justified such an extreme remedy as revocation of the order of confirmation. In doing so it carefully circumscribed, both in time and by cause, the court’s authority. Having confronted the issue directly and having so closely circumscribed it, it would be anomalous if Congress had intended to permit revocation to occur indirectly and silently through
The order of confirmation binds not only creditors but debtors as well.
Following confirmation, the reorganized debtor is required to use its property and resources to fulfill the confirmed plan and must make the payments to creditors that the plan requires.
In re Barker Medical Co., Inc.,
With confirmation, the automatic stay is generally terminated.
Herron,
A debtor’s default under a confirmed plan does not revive the original debt which was restructured by the plan. That default does not vitiate either the order of confirmation or the discharge that accompanied it. Since a default, by itself, does not have these consequences, no reason presents itself why they should arise when the same default is also used as a basis for post-confirmation dismissal under
This court holds that the post-confirmation dismissal of a Chapter 11 case does not vacate the order of confirmation or revoke the debtor’s discharge. The motion to alter or amend should be denied. An order doing so will be entered.
Notes
. The Bankruptcy Code has no provision which directly addresses revocation of the discharge that accompanies confirmation of a Chapter 11 plan. The discharge can only be attacked indirectly, through revocation of the order of confirmation. Robert E. Ginsberg, Bankruptcy, ph. 11, 654, at p. 11,074 (1986).
See also In re Jersey Island Packing Co.,
. This amendment did not become effective until after this case was filed. Therefore, it is not directly applicable. It does, however, give insight into the meaning Congress intended the statute, as originally worded, to have.
. In making this observation, the court assumes, without deciding, that the confirmed plan has not been substantially consummated.
See
. Section 506(d) voids liens against property of the estate to the extent the lien has no value or secures a claim which is not allowed. Section 510(c)(2) allows the estate to succeed to a lien that secures a claim which has been subordinated. Section 542 allows the court to compel a third party to turn property of the estate over to the trustee. Section 543 allows the court to accomplish the same result where the third party is a custodian or pre-petition receiver of property of the estate. Section 544 contains the "strong arm powers” of the trustee and establishes the status of the trustee in relation to property of the estate and third parties who claim an interest in it. Section 545 permits the avoidance of certain statutory liens so that property of the estate can be administered free from them. Section 547 authorizes the avoidance of certain pre-petition transfers of debtor’s property which have the effect of preferring one creditor over others which are similarly situated. Section 548 allows the trustee to avoid transfers of debtor's property which are considered to be fraudulent because they were for less than a reasonably equivalent value or undertaken with the intent to hinder, delay, or defraud debtor's creditors. Section 549 permits the avoidance of unauthorized post-petition transfers of property of the estate. Section 553(b) permits the avoidance of certain pre-petition setoffs of mutual claims between a debtor and a creditor, under circumstances which are very similar to preferential transfers. Section 724(a) authorizes the avoidance of a lien against property of the estate to the extent it secures a claim which does not represent compensation for a creditor’s actual pecuniary loss. Section 550 simply identifies from whom avoidable transfers may be recovered and the nature of that recovery. Section 551 preserves avoided transfers for the benefit of the estate and allows the trustee to step into the shoes of the transferee.
. The only exception is