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i. In re Markosian, 506 B.R. 273 (9th Cir. BAP 2014).
Issue: : In case converted from Chapter 7 to Chapter 11 and then reconverted to Chapter 7, dispute arose over ownership of bonus that debtor-husband received from his employer after reconversion for services rendered while the Chapter 11 case was pending. Debtors, after turning over the bonus to Chapter 7 trustee, filed motion to compel trustee to return it.
Holdings: (1 addressing an issue of first impression in the circuit, an individual debtor's Chapter 11 postpetition earnings which are property of the estate revert to him or her upon a subsequent conversion to Chapter 7, and (2) the bonus received by debtor post-reconversion, which constituted earnings from personal services and so was property of debtors' Chapter 11 estate, reverted to debtors upon reconversion.
i. Ice House America, LLC v. Cardin,---- F.3d ----, 2014 WL 1887583 (6th Cir. 2014)..
Issue: Individual Chapter 11 debtor sought confirmation of plan which allowed him to retain most of his prepetition assets while paying judgment creditor less than 10 cents on the dollar of its approved claim. Judgment creditor and United States Trustee (UST) objected on the ground that proposed plan violated the "absolute-priority rule."
Holding: BAPCPA did not abrogate the "absolute-priority rule" as applied to individual debtors who file for bankruptcy under Chapter 11 of the Bankruptcy Code but, rather, the rule continues to apply to the prepetition property of such debtors.
ii. In re Lively, 717 F.3d 406 (5th Cir. 2013).
Issue: Whether the absolute priority rule, 11 U.S.C. § 1129(b)(2)(B) applies in individual Chapter 11 cases?
Holding: The Fifth Circuit joined the Fourth and Tenth Circuits in holding that the absolute priority rule applies to individual Chapter 11 debtors. The court took the narrow interpretation that BAPCPA exception in 11 U.S.C. § 1115 to the absolute priority rule "plainly covers only the individual debtor's post-petition earnings and post-petition acquired property." The court concluded that Congress can provide a clearer directive if it wants to abolish the absolute priority rule in its entirety for individual Chapter 11 debtors.
©2014 William L. Norton III
