I previously reviewed the case of In re Tegeder, ___ B.R. ___, 2007 WL 1549067 (Bkrtcy.D.Neb) which held that per BAPCPA’s amendments, the absolute priority rule no longer applies to the retention of property by individual chapter 11 debtors. The court in the recent case of In re Roedemeier, ___ B.R. ___, 2007 WL 2350184 (Bkrtcy.D.Kan.)(Somers,J.) reached the same conclusion.
In this case, the Chapter 11 Debtor, who was a dentist, proposed a Chapter 11 plan that would, inter alia, allow him to retain ownership of his interest in his LLC which operated his dental practice and proposed to pay $30,000 on general unsecured claims totaling about $875,000. The court noted that prior to the enactment of BAPCPA in 2005, the absolute priority rule applied to all Chapter 11 debtors, but that BAPCPA added the “except” clause to section 1129(b)(2)(B)(ii) with the addition of the phrase “except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115…” The court stated that the “except” clause created an exception for individual Chapter 11 debtors to the absolute priority rule. The court construed this exception and section 1115 broadly to allow a debtor to exempt both pre- and postpetition property under a plan even though a class of unsecured creditors are not paid in full.
The court stated that a various changes were made to Chapter 11, including the exception to the absolute priority rule, so that it could function for individual Chapter 11 debtors much like Chapter 13. These include section 1115 which bring postpetition property into the estate, section 1123(a)(8) which calls for the debtor’s plan to provide for payment to creditors from the debtor’s postpetition earning from services or other future income, section 1129(b)(2)(B)(ii)’s allowance to the debtor to keep property included in the estate under section 1115 without paying in full a class of rejecting unsecured creditors, section 1129(a)(15) which authorizes the debtor to overcome an objection by an unsecured creditor by meeting the projected income test, section 1141(d)(5) which generally delays entry of the discharge until completion of all payments under the plan, and section 1127(e) which permits post-confirmation plan modification.
The court also made some other interesting conclusions in the case. The court found that section 1129(a)(15), which was added by BAPCPA, only applies if a holder of an allowed unsecured claim objects to confirmation. As the involved creditor did not so object, the Debtor was not required to meet the requirements of section 1129(a)(15)(A) or (B). Section 1129(a)(15)(A) would have required the claim to have been paid in full and section 1129(a)(15)(B) would have imposed a disposable income test. But the court found that the requirements of the section 1129(a)(15)(B) disposable income test were met in any event. The court concluded that the disposable income test should be performed with the expenses side judicially determined for this above-median income debtor (as per Form 22B) and not by the use of the I.R.S. standards as per section 707(b)(2).
In approving the debtor’s disclosure statement, the court concluded that disclosure statements for smaller businesses are not required to be as extensive as those of a medium to large reorganization which often involve the issuance of securities. The court referred to the list for smaller businesses in 7 Collier on Bankruptcy, para. 1125.02[2] at pp. 1125-12 to 1125-13 (citing In re Malek, 35 B.R. 443 (Bankr.E.D.Mich.1983)). The court stated that the minimum information should include a description of the business, its history, financial information, description of the plan, facts respecting its execution, a liquidation analysis, identification of management and its compensation, transaction with insiders, and tax consequences of the plan.
