# U ni te d S ta te s B an kr up tc y A pp el la te P an el

For the Eig hth Circu it

__ __ __ __ __ __ __ __ __ __ __ __ __ _

No. 1 5- 60 01

__ __ __ __ __ __ __ __ __ __ __ __ __ _

In re: Su zet te W oo dwa rd

ll ll Deb to r

----- ----- ----- ----- ----- -----

Heri ta ge Ban k

ll ll ll ll ll ll ll ll ll ll l Cr ed it or

- App el la nt

v.

Su zet te W oo dwa rd

ll ll ll ll ll ll ll ll ll ll Deb to r - Ap pe ll ee

----- ----- ----- ----- ----- -----

Nati on al Ass oc ia ti on of C on su m er Ba nk ru pt cy Att or ne y s

Amicu s o n Beh al

f o f Ap pe ll ee(s )

__ __ __ __ __ __
App eal fro m

Uni te d S ta te s B an kr up tc y Co ur t fo r th e Dis tri ct of Ne br as ka - Lin co ln

__ __ __ __ __ __

Su bm it te d: Ju ly 22, 2 01 5
Fil ed : Au gu st 13 , 20 15

__ __ __ __ __ __Befo re FEDERMAN, Ch ie f Ju dg e, SCHERM ER, an d S HODEEN, Ban kr up tc y

Ju dg es

.

__ __ __ __ __ __

SCHERM ER, Ban kr up tc y Ju dg e

Heri ta ge Ban k (Heri ta ge ) ap pe al s fro m a Ban kr up tc y Co ur t or de r co nf

irming

Su zet te W oo dwa rd 's (Deb to r) Fi fth Am en de d Ch ap te r 11 P l a n. The co nf irmatio n

or de r is a fin al or de r of th e Ban kr up tc y Co u rt ov er whi ch we ha ve juri sd ic ti on on

ap pe al

. Se e 28 U.S.C. § 15 8( b)

. The Not ic e of App eal an d St at em en t of Elec ti on al so

refe ren c e s an Apr il 29

, 20 14 or de r de nyin g th e Deb to r's Thi rd Am en de d Pl an

. W e
be li ev e th at th e d en ia l o f co nf irmatio n o f th e Deb to r's Thi rd Am en de d P la n i s n ot a

fin al ord er an d c an no t b e th e su bjec t o f th is ap pe al

. Bul la rd v. Blu e Hil ls Ban k

, 13 5

S.Ct

. 16 86 (2 01 5)

. The refo re, th e so le ba si s of th is ap pe al is th e or de r co nf irming th e
Deb to r's Fi fth Am en de d Ch ap te r 11 Pl an

. Fo r th e fo ll owi ng reas on s, th e co nf irmatio n

or de r is rev ers ed an d t he cas e is rem an de d fo r a n ew co nf irmatio n h eari ng

.

IS SUES

1.Whet he r an im

pa ire d cl as s of cl ai m s ha s acce pt ed th e Deb to r's Fi fth Am en de d Pl an

.

2.Whet he r 11 U.S.C. §§ 11 29 (b )(2 )(B) (ii )'s ab so lu te pr io rit y ru le pr ev en ts in di vi du al

de bt or s in C ha pt er 11 fro m ret ai ni ng pr op ert y acq ui red pr io r to th e fil in g of th e
ba nk ru pt cy

pe ti ti on when no t al l cr ed it or s' c la im s wi ll be pa id in ful l.

3. W he th er th e va lu e of th e pr op ert y to be di st rib ut ed un de r th e Fi fth Am en de d Pl an
is les s t ha n t he Debt or ’s di sp os ab le in co m e.

2BACKGRO UND

The Deb to r is a pr act ic in g p at ho lo gi st in Gran d Is la nd

, Neb ras ka

. Sh e is a

m em be r of Pat ho lo gy Sp eci al is ts

, LLC. On Apr il 4, 20 11

, th e Deb to r fil ed fo r rel ie f

un de r Ch ap te r 7 of th e Ban kr up tc y Co de

. Heri ta ge ho ld s an al lo wed

, un se cu red cl ai m

in th e am ou nt of $ 27 0,5 66 .00

.

On May 15

, 20 12

, th e Deb to r acq ui red pr op ert y at 26 04 Arro whe ad Ro ad in

G r a nd Is la nd

, Neb ras ka as he r pr in ci pa l res id en ce fro m Lela nd an d Mar ie El l i o t t (Ell io tt s)

. As pa rt of th e pu rch as e pr ic e, th e Deb to r si gn ed a pr om is so ry no te in fav or

of th e Ell io tt s in th e am ou nt of $1 69 ,90 0, and gr an te d th e Ell io tt s a se cu rit y in te res t

in th e pr op ert y

. The Ell io tt s pe rfec te d th ei r li en in th e Deb to r’s pr op ert y

. In ad di ti on

to reg ul ar m on th ly pa y m en ts

, th e te rm s of th e no te req ui red th e Deb to r to m ak e a
ba ll oo n pa y m en t on Ju ne 1, 20 13

. The Ell io tt s su bs eq ue nt ly ag reed to ex te nd th e da te

on whi ch th e b al lo on pa y m en t was du e b y on e y ear.

The cas e was co n v e r t e d to a pr oc eed in g un de r Ch ap te r 11 on Sep te m be r 10

, 20 12 . The El li ot ts fil ed a p ro of of c la im ass ert in g s ecu red st at us wit h re sp ect to th e

pr i nc ip al res id en ce. Heri ta ge ob jecte d to th e Ell io tt s’ p ro of of cl ai m , n ot be cau se it

a r o se po st pe ti ti on , bu t ba se d on th e ti m el in es s of it s fil in g. The Ban kr up tc y C o u r t

ov erru le d th e ob

jecti on an d al lo wed th e cl ai m in th e am ou nt of $1 58 ,72 4.5 4. Heri ta ge
di d no t ap pe al th e or de r al lo win g th e cl ai m , bu t in st ead co nt in ue d to ob ject to th e

Ell io tt s’ vo ti ng on th e p la n a s an im pa ire d c la ss , on th e g ro un d t ha t t he cla im was a

po st pe ti ti on cl ai m

. At pl an co nf irmatio n, th e Ban kr

up tc y Co ur t es se nt ia ll y he ld th at

t h e El li ot ts ha d an al lo wed cl ai m , th at th e pl an al te red th e tre at m en t of th ei r cl a i m,

an d, t hu s, t ha t t he Ell io tt s wer e an im pa ire d c la ss en ti tl ed to th e v ot e o n t he pl an

.

The Ba nkr upt cy Co ur t en te red an or de r co nf irming th e Deb to r's Fi fth Am en de d

Pl an on Decem

be r 23

, 20 14

. The El l i o t t s , th e so le m em be rs of th ei r cl as s, vo te d in

fav or of th e pl an

. No ot he r im pa i r e d c l a s se s vo te d to acce pt th e pl an

. On ap pe al

,

3Heri ta ge arg ue s th a t t h e p la n sh ou ld no t ha ve be en co nf irmed be cau se : (1 ) an

im pa ire d cl as s di d no t acce pt it ; (2 ) it vi ol at ed th e ab so lu te pr io rit y r u l e ; a n d ( 3 ) it

do es no t ca ll for pa y

m en t o f al l o f th e Deb to r's di sp os ab le in co m e.

STANDARD OF REVIEW

We rev ie w th e ba nk ru pt cy co ur t's fin di ng s of fact fo r cl ear erro r an d it s

co nc lu si on s of la w de no vo

. In re W al ker

, 52 8 B.R. 41 8, 42 7 (B.A.P. 8t h Ci r. 20 15 )
(ci ti ng Heid e v. Ju ve (

In re Ju ve ), 76 1 F.3 d 84 7, 85 1 ( 8 t h C ir.2 01 4) ). Dete rm in in g
whe th er th e Ell io tt s m ay vo te on th e pl an an d whe t h e r th e ab so lu te pr io rit y ru le

ap pl ie s in in di vi du al Ch ap te r 11 cas es in vo lv e pu rel y le ga l qu es ti on s of st at ut or y

in te rp ret at io n. W e ex erci se de no vo rev ie w wit h res pe ct to each is su e. In re Jo hn so n , 50 9 B .R. 21 3, 21 4- 15 (B.A.P. 8t h Cir. 20 14 ) (ci ti ng Gra ven v. Fin k ( In re Gr av en ),

93 6 F.2 d 37 8, 38 4- 85 (8 th Ci r.19 91 ). W e fin d it un ne ces sa ry to reac h th e th ird is su e.

DISCUSS IO N

1. An Impai red Cl as s o f Cla ims ha s Acc epte d the Pl an

Heri ta ge as se rts on ap p e a l t h a t si nc e th e Deb to r’s ob li ga ti on to th e Ell io tt s

aro se p o st pe ti ti on , th e Ell io tt s were no t “ cred it or s,” as th at te rm is de fin ed in §

10 1( 10 ), an d s o t h e Ell io tt s were no t en ti tl ed to vo te on th e pl an

. Thu s, Heri ta ge

as se rts

, th e Ban kr

up tc y Co ur t erre d in tre at in g th em as a co ns en ti ng cl as s un de r §

11 29 (a)( 10 ). W e di sa gr ee an d th in k th at Heri ta ge ’s arg um en t m is se s th e m ark un de r

th e ci rcu m st an ces of t hi s ca se

.

The is su e is no t whe th er th e Ell io tt s were “ cred it or s” un de r § 10 1 ( 1 0 ), as
Heri ta ge as se rts

, be cau se th e ti m e to li ti ga te th e Ell io tt s’ cred it or st at us ha s lo ng si nc e

pa ss ed

. As a res ul t, Heri ta ge is no w fo recl os ed fro m rai si ng th e arg um en t on ap pe al

. Alt ho ug h it is tru e th at Heri ta ge ob jecte d to th e Ell io tt s’ pr oo f of cl ai m , th e ob jecti on

4was ba se d on t h e ti m el in es s of it s fil in g. Heri ta ge ne ve r ob jecte d to th e cl ai m ’s

fo un da ti on in po st pe ti ti on de bt

. Heri ta ge di d no t ap pe al th e Ban kr up tc y Co ur t’s or de r

al lo win g th e El l i o t t s ’ cl ai m , an d rev ie w is no w pr ecl ud ed by pr in ci pl es of re s ju di ca ta

. Heri ta ge m ay no t rai se th e is su e no w. W e ho ld th at th e Ell io tt s ha ve an

al lo wed cla im

.

W e do qu es ti on , ho wev er, whe th er th e Ell io tt s sh ou ld ha ve be en ho ld ers of an

al lo wed cl ai m be cau se we are n ot co nv in ced th at th e Ban kr up tc y Co de al lo ws for a

po st pe ti ti on cl ai m su ch as t h i s

. S ee, e.g
., Ban kr

. Law Man ua l § 6: 24 (5 th ed .)
( al th ou gh reco gn iz in g th at th e Co de pr ov id es fo r sp eci fic , i de nt ifi ed , e xc ep t i o n s t o

th e ru le

, st at in g th at “ [i]n g e n e ral

, on ly th os e cl ai m s th at ex is t as of th e da te of th e

fil in g of th e ba nk ru pt cy pe ti ti on , co m m on ly refe rred to as pr ep et it io n cl ai m s, m ay be

al lo wed as c la im s ag ai ns t t he est at e.”).

Nev ert he le ss , be cau se th e Ell io tt s were th e “ ho ld ers of a[n ] [al lo wed ] cl ai m ,”

th ey were en ti tl ed to v o t e o n th e pl an un de r th e pl ai n la ng ua ge of § 11 26 (a). Tha t

se ct io n pr ov id es th at “[

t] he ho ld er of a cl ai m or in te re st al lo wed un de r se ct io n 50 2

of th is ti tl e m ay a c c e p t or reject a pl an ” (em ph as is ad de d)

. Fu rth erm or e, §

11 29 (a)( 10 ) pr o v i d e s th at

, in or de r to co nf irm a pl an , “ [if

] a cl as s of cl ai m s is

im pa ire d un de r th e pl an , a t le as t on e cl as s of cl ai ms th at is im pa ire d u nd er th e pl an

ha s acce pt ed th e pl an , de te rm in e d w i t h ou t in cl ud in g an y acce pt an ce of th e pl an by

an y in si de r” (em

ph as is ad de d) . “ [A] cl as s of cl ai m s or in te res ts is im pa ire d u nd er a pl an , un le ss ,” as rel ev an t he re, th e pl an “ le av es un al te r e d th e le ga l, eq ui ta bl e, an d

co nt ract ua l rig ht s to whi ch su ch cl ai m or in te res t en ti tl es th e ho ld er of su ch cl ai m or

in t e r e s t

. ” 1 1 U.S.C. § 11 24

. W e be li ev e th at th e Ell io tt s’ cl ai m is im pa ire d. The y

ag reed to al te r th ei r rig ht s un de r th e no te whe n th ey ex te nd ed th e da te on whi ch th e
ba ll oo n pa y m en t was du e. In so do in g, th e Ell io tt s al so wa i v e d § 11 23 (b )(5 )’s

pr oh ib it io n ag ai ns t th e mo d i f ic at io n of se cu rit y in te res ts in a de bt or ’s pr in ci pa l

res id en ce. The an ti m od ifi cat io n pr ov is io n can be waiv ed by th e cred it or ho ld in g su ch

5a cl ai m

. Se e, e.g

. , In re Arn s , 37 2 B.R. 87 6, 88 2- 83 (Ban kr

. N.D. Ill

. 20 07 ) (h ol di ng 1

th at a le nd er can waiv e th e an ti m od ifi cat io n pr ov is io n in § 11 23 by ag r e ei ng to th e pl an an d no t pu rs ui ng an ob jecti on to co nf

irmatio n) ; In r e C

a n ov al i

, 20 11 W L

30 73 74 at 6 (Ban kr . E.D. N.C. Jan . 27

, 20 11 ) (s am e); In re May be rr y , 48 7 B .R. 44

, 46 (Ban kr

. D. Mas s. 20 13 ) (“ Abs en t th e cr ed it or ’s ag re emen t th e de bt o r c a nn ot

ob ta in co nf

irmatio n o f a ch ap te r 13 pl an whi ch pro po se s t o m od ify a clai m sec ur ed
by th e de bt or ’s p r in ci pa l res id en ce. If th e cr ed it or op ts to ag re e to di ff er en t

tr ea tmen t, it is cer ta in ly fr ee to do so .” ) ( qu ot in g In re W of fo rd , 4 49 B.R. 36 2, 36 5
( B a n k r. W .D. W is

. 20 11 ) (em ph as is ad de d) ; In re Smi th

, 40 9 B.R. 1, 4 (B a n k r

. D

. N.H

. 2 0 0 9 ) (“ [N]oth in g pr ev en ts a se cu red cred it or fro m co ns en ti ng to th e

m od ifi cat io n o f it s cl ai m .”).

Heri ta ge ci te s In re Kl ie

gl Bro s. Uni ver

sa l Elec tr ic St ag e Li

gh ti ng Co

. , whi ch

he ld th at

, si nc e § 11 26 (a) pr ov id es th at on ly th e ho ld er of a cl ai m or in te res t al lo wed

un de r § 50 2 m ay acce pt or reject a pl an , an d si nc e po st pe ti ti on se cu red le nd ers are no t

m en ti on ed or im

pl ie d in § 50 2, th e cl as s con ta in in g su ch a po st pe ti ti on le nd er as its

so le m em be r was no t en ti tl ed to vo te on th e pl a n. 14 9 B.R. 30 6, 30 7 (Ban kr

. E.D.

N.Y. 19 92 ) (ci ta ti on s om it te d)

. Howev er, in co nt ras t to th is cas e, Kl ie gl Bro s

. di d no t

sa y whe th er th e le nd e r th ere act ua ll y ha d an al lo wed cl ai m , as th e Ell io tt s do he re. Aga in

, m ay

be th e Ell io tt s sh ou ld no t ha ve ha d an al lo wed cl ai m , bu t th e fact is

, th ey
do

. To th e ex te nt Kl ie

gl Bro s. can be read to pr oh ib it th e Ell io tt s – as th e ho ld ers of

an all owe d c la im

im pa ire d b y th e pl an – from vo ti ng on th e pl an , we be li ev e su ch a
read in g i s co nt rary to t he lan gu ag e o f th e st at ut es di sc us se d a bo ve

.

Co ns eq ue nt ly, we do no t be li ev e th at th e Ban kr up tc y Co ur t erre d in pe rm it ti ng

t h e Ell io tt s' rat ifyin g vo te to se rv e as th e so le ba si s fo r th e sa ti sf act io n o f §

The m od ifi cat io n of a res id en ti al m or tg ag e su ch as th is co ul d, co nc ei va bl y , 1

rai se go od fai th is su es if th e m od ifi cat io n was do ne to c r e a te a fav or ab le im pa ire d
cl as s, b ut go od fai th is no t an is su e rai se d i n t hi s ap pe al

.

611 29 (a)( 10 )'s req ui rem en t th at an im pa ire d cl as s of cl ai m ho ld ers vo te in fav or of th e pl an . As th e ho ld ers of an al lo wed cl ai m an d so le memb e r s o f th ei r im pa ire d cl as s,

th e Ell io tt s’ rat ifyin g v ot e sa ti sf ie d § 11 29 (a)( 10 ).

2. Th e Abs ol ute Pri or ity Rule Appli es in I ndi vi dua l Cha pter 11 Cas es

“ [T]he ab so lu te pr io r i t y r ul e ‘pro vi de s th at a di ss en ti ng cl as s of un se cu red

cred it or s m

us t be pr ov id ed fo r in fu ll be fo re an y jun io r cl as s can rece iv e or ret ai n an y

pr op ert y un de r a reo rg an iz at io n pl an .” No rw es t Ban k W or th in gt on v. Ahl er

s , 48 5 U.S.

19 7, 20 2 (1 98 8) (q uo ti ng Ahl er s v. No rt hw es t Ban k (In re Ahl er s)

, 79 4 F.2 d 38 8, 40 1
(8 th Ci r. 19 86 )); 11 U.S.C. § 11 29 (b )(2 )(B) (ii ). Howev er, Co ng res s am en de d th e
ba nk ru pt cy co de in 20 05 to in cl ud e a s ta tu to ry ex cep ti on pe rm it ti ng in di vi du al

Ch ap t e r 1 1 de bt or s to ret ai n pr op ert y in cl ud ed in th e es ta te un de r se ct io n 11 15 ..."

wit ho ut fir st pa y in g c r e d i to rs (em ph as is ad de d)

. 11 U.S.C. § 11 29 (b )(2 )(B) (ii ).

Alt ho ug h m os t cou rts ag ree t ha t § 11 15 de fin es "p ro pe rty of t he est at e" a s p ro pe rty

an d in co m e acq ui red aft er co m m en cem en t of th e cas e in ad di ti on to th e pr ep et it io n

pr op ert y sp eci fie d in § 54 1, de fin in g wha t "p ro pe rty [is ] in cl ud ed in th e es ta te un de r

se ct io n 11 15 " ha s di vi de d co ur ts

. W he th er pr ep et it io n pr op ert y is "p ro pe rty in cl ud ed

in th e es ta te un de r se ct io n 11 15 " w i l l ul ti m at el y de te rm in e whe th er th e ab so lu te

pr io rit y rul e h as an y

co nt in ui ng ap pl ic at io n i n i nd iv id ua l d eb to r Ch ap te r 11 cas es

.

In or de r to de te rm in e whe th er cl ari ty e x i s t s in th e m ur ky juri sp ru de nc e

su rro un di ng th e ab so lu te pr io rit y ru le

, we th in k an ov erv ie w of Co ng res s’s th in ki ng
wit h res pe ct to in di vi du al Ch ap te r 11 cas es wou ld be il lu m in at in g. Co ng res s gr aft ed

m an y as pe ct s of Ch ap te r 13 on to th e in di vi du al Ch ap te r 11 fram ewo rk

. Fo r in st an ce, § 11 23 (b )(5 ) ge ne ral ly m im ic s § 13 22 (b )(2 )’s tre at m en t of cl ai m s se cu red on ly by th e
Deb to r’s pr in ci pa l res id en ce. In ad di ti on , § 11 29 (a)( 15 ) im po rts § 13 25 (a)( 5) ’s

co nc ep t of di sp os ab le in co m e, an d § 11 41 ( d) (5 ) do es th e sa m e wit h res pe ct to §

13 28 (a)’s li m it at io ns on di sc ha rg e. Fi na ll y , li ke § 13 06

, § 11 15 br in gs in to th e es ta te

po st pe ti ti on earn in gs an d p ro pe rty. Othe r si m il ari ti es ex is t.

7Alt ho ug h Con gr es s was ab le to im po rt m an y

ele m en ts of C ha pt er 1 3 i nt o th e

in di vi du al Ch ap te r 11 aren a, it was no t a pe rfec t fit

. In fact

, in cert ai n res pe ct s, it di d

no t fi t at all . The ab so lu te pri or it y rul e st at es , in ful l, t ha t:

[T]he ho ld er of an y cl ai m or in te res t th at is jun io r to th e cl ai m s of su ch

cl as s wil l no t rece iv e or ret ai n un de r th e pl an on acco un t of su ch jun io r
cl ai m or in te res t an y pr op ert y , ex cep t th at in a cas e in whi ch th e de bt or

i s a n i n d iv id ua l, th e de bt or m ay ret ai n pr op ert y in cl ud ed in th e es ta te

un de r se ct io n 11 15

, su bjec t to th e req ui rem en ts of su bs ect io n (a)( 14 ) of

th is sec ti on [rel at in g t o p ay m en t o f do m es ti c su pp or t o bl ig at io ns ].

§ 11 29 (b )(2 )(B) (ii ). W e su gg es t th at th ere is no “ in te res t” ho ld er in an in di vi du a l

Ch ap te r 11 cas e. The co nc ep t pl ai nl y ap pl ie s t o e qu it y ho ld ers in th e co rp or at e or

pa rtn ers h i p C h a p t e r 11 co nt ex t, fo r ex am pl e, bu t we do no t be li ev e th at th ere is an

in di vi du al Ch ap te r 11 an al og ue

. Ahl er s si m pl y as su m ed

, wit ho ut di sc us si on , th at th e

D e b t o r s were in te res t ho ld ers

. No rt hw es t Ban k W or th in gt on v. Ahl er

s , 48 5 U.S. a t

96 6. Bu t ho w can on e ho ld an in te res t in on es el f? W e do no t th in k th is is po ss ib le

. In

an y ev en t, on e can n o t a v oi d th e fact th at th is is a Ch ap te r 11 cas e. If Co ng res s

in te nd ed fo r al l Ch ap te r 13 sp eci fic la w to ap pl y in in di vi du al Ch a p t e r 1 1 cas es , it

co ul d ha ve a f

fo rd ed hi gh er in co m e de bt or s th e ab il it y to se ek reo rg an iz at io n un de r
Ch ap te r 13 . It d id no t.

W e ho ld th at th e ab so lu te pr io rit y ru le st i l l a p p l i e s in in di vi du al Ch ap te r 11

cas es to pr ev en t de bt or s fro m ret ai ni ng pr ep et it io n pr op ert y

. Our ho ld in g is su pp or te d
by: (1 ) th e la ng ua ge an d co nt ex t of § 11 29 (b )(2 )(B) (ii ) an d 11 15 ; (2 ) th e ab se nc e of

a cl ear in di cat io n by Co ng res s of an in te nt to ab ro ga te ; an d (3 ) th e weig ht of ex is ti ng

au th or it y

.

8A. The Rel eva nt St at ut or y Lang ua ge an d Co nt

ex t Sup po rt s th e Ab so lu te

Pri or it y Rul e' s C on ti nui ng Ap pl ic at io n

"In de te rm in in g th e m ean in g of a st at ut or y pr ov is io n, ' w e lo ok fir st to it s

la ng ua ge , gi vi ng th e wor ds us ed th ei r or di na ry m ean in g." La ws on v. FMR LLC

, 13 4

S. Ct

. 11 58

, 11 65 (2 01 4) (q uo ti ng Mos ka l v. Uni te d St at es , 49 8 U.S. 10 3

, 10 8
(1 99 0) ). "Whet he r a st at ut or y te rm is un am bi gu ou s, ho wev er, do es no t tu rn so le ly on
di ct io na ry de fin it io ns of it s co m po ne nt wor ds

. Rat he r, '[t ]he pl ai nn es s or am bi gu it y
of st at ut or y la ng ua ge is de te rm in ed [n ot on ly] by refe ren ce to th e la ng ua ge it se lf, [b ut

as wel l b y] t h e sp eci fic co nt ex t in whi ch th at la ng ua ge is us ed

, an d th e br oa de r

co nt ex t of th e st at ut e as a who le ." Y a te s v. Uni te d St at es , 1 35 S. Ct . 1 07 4, 10 81 -8 2
(2 01 5) (ci ti ng Rob in so n v . Sh el l Oi l Co

. , 51 9 U.S. 3 37 , 34 1 (1 99 7) ).

The la ng ua ge of §§ 1129 an d 11 15 fav or s th e ab so lu te pr io rit y ru le 's co nt in ui ng

ap pl ic at io n. Tha t po st pe ti ti on pr op ert y is th e on l y " p ro pe rty in cl ud ed in th e es ta te

un de r se ct io n 11 15 " fo ll ows fro m § 1 12 9's us e o f th e wor d "i nc lu de d." "Th e act io n
de sc rib ed by 'in cl ud e' is ei th er 'to ta ke in as a pa r t

, a n e l e men t

, or a m em be r ...[C ]onv ert ed in to th e act iv e vo ic e, § 11 29 (b )(2 )(B) (ii ) refe rs to pr op ert y th at § 11 15

in cl ud es in th e es ta te , wh ic h na tu ral ly rea ds a s ' p r o p e r t y t ha t § 11 15 ta ke s in to th e

es ta te

... ." Ice Hou se Ameri ca
, LLC v. Ca rd in ( In re Ca rd in ), 75 1 F.3 d 73 9 (6 th Ci r.

20 14 ). C o nt ex tu al ly, th e on ly pr op ert y th at § 11 15 can ta ke in to th e es ta te is

po st pe ti ti on pr op ert y an d in co m e be cau se pr ep et it io n pro pe rty is al read y pa rt of th e

es ta te un de r § 54 1. "Se ct io n 11 15 can no t ta ke in to th e es ta te pr op ert y th at was al read y
th ere [p rep et it io n pr op ert y un de r § 54 1]

... wha t § 11 15 ta ke s in to t h e e s ta te -is

pr op ert y 'th at th e d eb to r acq ui res aft er t he co m m en cem en t o f th e cas e." Id

.

The te xt of § 11 15 (a) l ead s t o t he same con cl us io n. It st at es th at "p ro pe rty of

th e es ta te in cl ud es , in ad

di ti on to th e pr op er ty sp eci fi ed in se ct io n 54 1
– al l pr op ert y
of th e ki nd sp eci fie d in se ct io n 54 1 th at th e de bt or acq ui res aft er th e co m m en cem en t

of th e cas e... .” (em

ph as is ad de d)

. The in cl us io n of "i n ad di ti on to " as a m od ifi cat io n

9of th e "p ro pe rty sp eci fie d in se ct io n 54 1" se pa rat es th e "p ro pe rty sp eci fie d in se ct io n

54 1" fro m al l of th e ot he r pr op ert y m en ti on ed in § 11 15

, th ereb y ch an ne li ng al l of th e

ot he r pr op ert y in to "p ro pe rty in cl ud ed in th e es ta te u n d er se ct io n 11 15 " whi le

fil te rin g fro m th is de fin it io n "t he pr op ert y sp eci fie d in se ct io n 54 1." In ot he r wor ds

,

[T]he ph ras e, 'th e pr op ert y sp eci fie d in se ct io n 54 1' can no t be vi ewed in

is ol at io n. The ph ras e is pa rt of th e pr ep os it io na l ph ras e be gi nn in g wit h

'in ad di ti on to ,' an d is th us no t th e di rect ob ject of th e tra ns it iv e ve rb

, 'in cl ud es ,' so i t do es no t rel at e to th e su bjec t of th e se nt en ce, 'pr op ert y
of th e es ta te

... .

In re Ar no ld , 47 1 B .R. 57 8, 6 02 (Ban kr . C.D. Cal. 2 01 2)

.

The br oa de r st at ut or y co nt ex t pr ov id es fu rth er su pp or t. "Be cau se § 5 41

in de pe nd en tl y in cl ud es al l § 54 1 pro pe rty in th e es ta te , it wou ld be a red un da nc y to

'rei nc lu de ' th at pr op ert y th ro ug h th e § 11 15 la ng ua ge ." In re Mah ar aj

, 68 1 F.3 d 56 9
(4 th Ci r. 20 12 ). Co ns eq ue nt ly, we are le ft to co nc lu de th at th e "p ro pe rty sp eci fie d in

se ct io n 54 1"
– th at is

, pr ep et it io n pr op ert y – is n o t " p r o p e r ty in cl ud ed in th e es ta te

un de r se ct io n 11 15 " th at is ex cl ud ed fro m th e ab so lu te pr i o r i t y ru le

. Sect io n 54 1

can no t op erat e as a "s ub se t" of § 11 15 as so m e "b ro ad vi ew" co ur ts ha ve su gg es te d.

Id

. at 56 9 (d is cu ss in g Fri ed man v. P+P, LLC (

In re Fri ed

man ), 46 6 B.R. 47 1 (B.A.P.

9t h Ci r. 20 12 )). The refo re, th e st at ut or y la ng ua ge an d co nt ex t su gg es ts th at Co ng res s
di d n ot ab ro ga te th e ab so lu te pri or it y rul e in in di vi du al Ch ap te r 11 cas es

.

B. Co ng re ss ha s no t Evi nced a Cl ea r In di ca ti on of an In te nt to Ab ro ga te

th e Ab so lu te Pri or it

y Rul e

The co nc ep t of th e ab so lu te pr io rit y ru le was fir st art ic ul at ed in 19 13

. N. Pac

. R. Co

. V. Boy d

, 22 8 U.S. 48 2, 50 8 (1 91 3)

. W e be li e v e th at Co ng res s wou ld ha ve

em pl oyed cl eare r la ng ua ge to ab ro ga te th e ab so lu te pr io rit y ru le if it ha d so in te nd ed

.

10It co ul d ha ve " e x p r e s s l y ex em pt ed in di vi du al de bt or s at th e be gi nn in g of §

11 2 9 ( b ) ( 2 ) (B)( ii )." Dil l Oil Co mpa ny
, LLC v. St ep he ns ( In re St ep he ns ), 70 4 F.3 d

12 86 (1 0t h Ci r. 20 13 ). It co ul d ha ve om it te d "i n ad di ti on to th e pr op ert y sp eci fie d in

se c t i o n 5 4 1 " fro m th e in tro du ct or y cl au se of § 11 15 (a), whi le in cl ud in g th e wor ds

" b e f o r e a n d " di rect ly pr eced in g "af te r" in (a)( 1) of th e st at ut e. The la ng ua ge of th e

st at ut e, th en , wou ld read

, "p ro pe rty of th e es ta te in cl ud es [co m m a an d tex t om it te d]

– al l pr op ert y of th e ki nd sp eci fie d in se ct io n 54 1 th at th e de bt or acq ui res be fo re an d

aft er th e co m

m en cem en t of th e cas e." Co ng res s di d no t m ak e th es e ch an ge s, ho wev er,

an d we s ee n o re as on to read th em in to §§ 11 29 or 1 11 5.

Fu rth erm or e, an y m en ti on of th e ab so lu te p r io rit y ru le 's ab ro ga ti on is

co ns pi cu ou sl y a b s e nt in The Ban kr up tc y Abu se an d Prev en ti on Act of 20 05 's
(BAPC PA) le gi sl at iv e hi st or y . P L 10 9- 8, Ap ril 20 , 20 05 , 11 9 S ta t 2 3." BAPCP A's

le gi sl at iv e hi st or y li st s se ve ral de bt or pr ot ect io ns bu t m ak es no m en ti on o f

el im in at in g th e APR

... ha d Co ng res s in te nd ed su ch a dr as ti c ch an ge , it su rel y wou ld

ha ve in cl ud ed th e am en dm en t in it s li st of de bt or pr ot ect io ns

. In st ead

, th e

am en dm en ts are be st un de rs to od as pr es erv in g th e st at us qu o." St ep he ns , 70 4 F.3 d at

12 86 (ci ti ng H.R. R E P

. N O

. 10 9- 31

, pt

. 1, at 2, 17 -1 8 an d Mah ar aj

, 68 1 F.3 d at 57 2)

. "[W] e wil l no t read th e Ban kr up tc y Co de to ero de pa st ba nk ru pt cy pr act ic e ab se nt a
cl ear in di cat io n th at Co ng res s in te nd ed su ch a de pa rtu re." In re Li vel y , 71 7 F.3 d 40 6
(5 th Cir . 20 13 ) (q uo ti ng Hami lt on v. La nn in g , 56 0 U.S. 5 05 , 51 7 (2 01 0) ).

C. The Over whel

m in g W ei gh t o f Aut ho ri ty ha s Up hel

d t he Ab so lu te

Pri or it y Rul e

Fi na ll y , th e m ajor it y of co ur ts to ad dr es s th e is su e, in cl ud in g th e Fo ur th

, Fi fth

, Si xt h, an d Ten th Ci rcu it s, fo ll ow th e "n arro w vi ew." Se e Ice Hou se , 75 1 F.3 d at 73 4;

Li vel y , 71 7 F.3 d at 40 6; St ep he ns , 70 4 F.3 d at 12 79 ; Mah ar aj

, 68 1 F.3 d at 55 8. The y
ha ve he ld , a s we do to da y , t ha t § 11 15 m erel y au gm en ts ex is ti ng es ta t e p r op ert y as

se t ou t in § 5 4 1 b y d rawi ng in po st pe ti ti on pr op ert y an d in co m e. In fact

, no ci rcu it

11co ur t ha s r u le d ot he rwis e. The refo re, we are co m fo rta bl e in co nc lu di ng th at th e

ab so lu te pri or it y

rul e st il l h as ap pl ic at io n i n i nd iv id ua l Ch ap te r 11 cas es

.

3. Det ermini ng w heth er th e Debto r is Cont ri buti ng Les s th an Her Di sp os ab le

In co m e to the Pl an is Unnece ss ar y

W he n t he ho ld er o f an al lo wed un se cu red cl ai m ob jects to pl an co nf

irmatio n

in a Ch ap te r 11 cas e in vo lv in g an in di v i d u a l de bt or , § 11 29 (a)( 15 ) req ui res th at al l

un se cu red cl ai m s be pa id in fu ll or th at t he de bt or pa y al l of he r di sp os ab le in co m e

in to th e pl an fo r fiv e y ears

. “ [D]isp os ab le in co m e” is de fin ed i n § 13 25 (b )(2 ) as

“ cu rren t m on th ly in co m e rece iv ed by th e Deb to r

... le ss th an am o u n t s r e a s on ab ly

ne cess ary to be ex pe nd ed

... .” The Ban kr up tc y Co ur t de te rm in ed th e Deb to r’s in co m e

an d t he reas on ab le ne ss of h er ex pe ns es

.

Heri ta ge , ho wev er, be li ev es th at th e Deb to r’s in co m e ta x ret ur n sh ou ld be us ed

to d e t e r m in e “ cu rren t m on th ly in co m e” rat he r th an an av erag e of he r pr ev io us si x

m on th ly “ dr aws ” fro m Pat ho lo gy Sp eci al i s t s , LLC. Heri ta ge al so di sp ut es th e

reas on ab le ne ss of th e Deb to r’s ex pe ns es

. Bec au se we ha ve de te rm in ed th at th e
ab so lu te pr io rit y ru le ap pl ie s to in di vi du al s in Ch ap te r 11

, it is un ne ces sa ry to ad dr es s

th e Ban kr up tc y Co ur t’s de t e r mi na ti on of th e Deb to r’s di sp os ab le in co m e. The

Deb to r’s “ di sp os ab le in co m e” as de fin ed in § 13 25 (b )(2 ) is “ pr op ert y in cl ud ed in th e

es ta te un de r se ct io n 11 15 " whi ch th e Deb to r m ay r e t a i n

. Heri ta ge st at ed at or al

arg um en t th at i t wil l on ly acce pt fu ll pa y m en t on it s cl ai m

. The refo re, an y
de te rm in at io n o f di sp os ab le in co m e o n a pp eal is un ne ces sa ry

.

CONCLUSI ON

Fo r th e rea so ns st at ed ab ov e, we rem an d t he cas e fo r a n ew co nf irmatio n
he ari ng

.

12