UNITED STATES BANKRUPTCY COURT 

SOUTHERN DISTRICT OF FLORIDA 

FORT LAUDERDALE DIVISION 

www.flsb.uscourts.gov

In re: 

Case No. 21-19419 

James Andrew Joseffy, 

Chapter 11 

Debtor. 

__________________________________/ 

MEMORANDUM OPINION AND ORDER 

DENYING DEBTOR’S MOTION FOR CRAMDOWN 

The Debtor’s plan does not pay the rejecting unsecured class of creditors in full, 

so he seeks to confirm by cramdown.1 But the Debtor is retaining exempt and nonexempt property. Since the enactment of BAPCPA and § 1115, a split of authority has 

developed over whether § 1115 eliminates the absolute priority rule in individual 

chapter 11 cases. Courts have also long disagreed whether the absolute priority rule 

1 Doc. 122. 

Peter D. Russin, Judge

United States Bankruptcy Court

_____________________________________________________________________________

ORDERED in the Southern District of Florida on September 8, 2023.

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bars an individual debtor from retaining exempt property. For the reasons that 

follow, the Court concludes that the absolute priority rule is alive and well in 

individual chapter 11 cases and that individual debtors may retain their exempt 

property without violating it. Because the Debtor proposes to retain non-exempt

property, however, the plan in this case may not be confirmed as proposed. 

I. Background 

On September 29, 2021, the Debtor filed for chapter 11 bankruptcy. At the 

time, the Debtor owned (among other things): 

 real property located at 1045 Greenboro Road, 

Washington, Georgia; 

 a Ford F-250 truck; 

 a Rolex watch; and 

 a Casio dive watch.2

The Debtor did not claim either of the watches as exempt,3 but he did claim the 

Greenboro Road property and the Ford F-250 as exempt under Bankruptcy Code § 

522(b)(3)(B) because he owns them as tenants by the entirety with his non-filing 

spouse.4

2 Doc. 1, Schedule A/B. 

3 Doc. 99, Ex. B. The Debtor initially listed the watches on Schedule C. Doc. 1, Schedule C. But at 

confirmation, the Debtor conceded the watches are not exempt. Doc. 99, Ex. B. 

4 Doc. 1, Schedule C; see also 11 U.S.C. § 522(b)(3)(B) (providing that a debtor may exempt from 

property of the estate “any interest in property in which the debtor had, immediately before the 

commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that 

such interest as a tenant by the entirety or joint tenant is exempt from process under applicable 

nonbankruptcy law”). 

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The Debtor now seeks to confirm a chapter 11 plan under which he proposes 

to pay unsecured creditors, who hold more than $750,000 in allowed unsecured 

claims, a total of $30,000 over five years.5 Although the dividend to unsecured 

creditors is only 3.99%, it is undisputed that it is more than unsecured creditors 

would receive in a chapter 7 liquidation.6 

Two classes of secured creditors have voted in favor of the plan.7 But the only 

Class 4 unsecured creditors who have cast ballots have voted to reject the plan.8 The 

Debtor now seeks to confirm by cramdown under Bankruptcy Code § 1129(b) despite 

Class 4’s rejection of the plan.9

Bankruptcy Code § 1129(b) allows a debtor to confirm a plan over the rejection 

of an impaired class so long as “the plan does not discriminate unfairly, and is fair 

and equitable, with respect to each class of claims or interests that is impaired under, 

and has not accepted, the plan.”10 Here, the Debtor argues that the plan does not 

discriminate unfairly, and is fair and equitable, because unsecured creditors are 

5 Doc. 99 at 7; Doc. 100 at 18. 

6 Doc. 99 at Ex. B. 

7 Docs. 116 & 118. 

8 Docs. 112 & 113. 

9 Doc. 122. 

10 11 U.S.C. § 1129(b)(1) (“Notwithstanding section 510(a) of this title, if all of the applicable 

requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, 

the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the 

requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, 

with respect to each class of claims or interests that is impaired under, and has not accepted, the 

plan.”). 

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receiving more under the plan than they would receive in a chapter 7 liquidation.11

The U.S. Trustee, however, objects that the plan is not fair and equitable because it 

violates the § 1129(b)(2)(B) “absolute priority rule.” 

II. Analysis 

The absolute priority rule, which generally “provides that a dissenting class of 

unsecured creditors must be provided for in full before any junior class can receive or 

retain any property [under a reorganization] plan,”12 dates back more than 80 years 

to the Supreme Court’s decision in Case v. Los Angeles Lumber Products Co.13 There, 

the Supreme Court considered whether to confirm a plan under section 77B of the 

Bankruptcy Act, which provided that a plan shall be confirmed if (among other 

things) “it is fair and equitable and does not discriminate unfairly in favor of any class 

of creditors or stockholders.”14 Writing for the majority, Justice William O. Douglas 

observed that, before the advent of section 77B, the term “fair and equitable” had 

acquired a fixed meaning in equity receivership reorganizations.15

That fixed meaning included the “rules of law” enunciated in the Supreme 

Court’s decisions in Louisville Trust Co. v. Louisville, New Albany & Chicago Railway 

11 Doc. 122, ¶ 10. 

12 Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202 (1988) (quoting Ahlers v. Norwest Bank 

Worthington (In re Ahlers), 794 F.2d 388, 401 (8th Cir. 1986)). 

13 308 U.S. 106, 116 – 17 (1939); In re Maharaj, 681 F.3d 558, 568 – 69 (4th Cir. 2012) (“In Case v. Los 

Angeles Lumber Products Co., the Court for the first time used the term ‘absolute priority’ to describe 

the rule.”) (citation omitted). 

14 Case, 308 U.S. at 114 – 15 & n.6 (emphasis added). 

15 Id. at 115. 

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Co.;16 Northern Pacific Railway Co. v. Boyd;17 and Kansas City Terminal Railway Co. 

v. Central Union Trust Co.,18 all of which dealt with the priority to be accorded 

creditors over shareholders in reorganization plans.19 In Louisville Trust Co., the 

Supreme Court “reaffirmed” the “familiar rule” that a “stockholder’s interest in the 

property [of an insolvent corporation] is subordinate to the rights of creditors”— 

“[f]irst, of secured, and then of unsecured.”20 Based on this rule, which the Boyd Court 

later referred to as the “fixed principle” by which plans of reorganization were to be 

governed, the Louisville Trust Co. Court denounced “any arrangement . . . by which 

the subordinate rights and interests of the stockholders are attempted to be secured 

at the expense of the prior rights of either class of creditors.”21 Then, in Kansas City 

Terminal Railyard Co., the Supreme Court again reaffirmed the rule that “to the 

extent of their debts[,] creditors are entitled to priority over stockholders against all 

the property of an insolvent corporation.”22 This “rule of full or absolute priority,” 

according to Justice Douglas, had been “properly applied” throughout the history of 

16 174 U.S. 674 (1899). 

17 228 U.S. 482 (1913). 

18 271 U.S. 445 (1926). 

19 Case, 308 U.S. at 115 – 16. 

20 Id. at 116 (quoting Louisville Trust Co., 174 U.S. at 684). 

21 Id. (quoting Louisville Trust Co., 174 U.S. at 684). 

22 Id. (quoting Kansas City Terminal Ry. Co., 271 U.S. at 455). 

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equity reorganizations in “passing on objections made by various classes of creditors 

that junior interests were improperly permitted to participate in a plan.”23

“Although based on the ‘fair and equitable’ requirements found in § 77B of the 

Bankruptcy Act (“the Act”), the absolute priority rule had itself never been codified 

under the Act.”24 When Congress amended the Act in 1952 to modify the 

requirements for confirming a plan under what was then Chapter XI, it repealed the 

“fair and equitable” requirement, thereby doing away with the judicially created 

absolute priority rule.25 Congress explained it eschewed the absolute priority rule 

because it was unrealistic: 

[T]he fair and equitable rule, as interpreted in Northern 

Pacific Railway Co. v. Boyd, and Case v. Los Angeles Lumber 

Products Co., Ltd., cannot realistically be applied . . . . Were 

it so applied, no individual debtor and . . . no corporate debtor 

where the stock ownership is substantially identical with 

management could effectuate an arrangement except by 

payment of the claims of all creditors in full. . . . The proposed 

amendment is designed to remove the fair and equitable 

provision, and by the paragraph added to each of the 

amended sections it is made clear that the rule of the Boyd

and Los Angeles cases shall not be operative . . . .26

When Congress passed the Bankruptcy Act of 1978, it reversed course and 

codified the judicially created “absolute priority rule” in Bankruptcy Code § 1129(b).27

23 Id. at 118. 

24 In re Maharaj, 681 F.3d 558, 560 (4th Cir. 2012). 

25 Id. at 560 – 61. 

26 H.R. Rep. No. 82–2320, 82nd Congress (1952) reprinted in 1952 U.S.C.C.A.N. 1960, 1981 – 82 

(citations omitted); In re Maharaj, 681 F.3d at 561. 

27 11 U.S.C. § 1129(b)(2)(B)(ii); Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202 (1988) (“The 

[absolute priority] rule had its genesis in judicial construction of the undefined requirement of the 

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Under then-Bankruptcy Code § 1129(b), a plan could be confirmed, even if the debtor 

did not have the vote of all the impaired classes, so long as “the plan [did] not 

discriminate unfairly, and [was] fair and equitable, with respect to each class of 

claims or interests that [were] impaired under, and [had] not accepted, the plan.”28

With respect to a class of unsecured creditors, § 1129(b) provided that a plan was “fair 

and equitable” if: 

 the unsecured creditor class was paid in full; or 

 the holder of any claim or interest that is junior to 

the claims of such class would not receive or retain 

under the plan on account of such junior claim or 

interest any property.29

For three decades, the absolute priority rule remained unchanged. But, in 

2005, Congress made significant changes to the Bankruptcy Code as part of the 

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA),30 two 

of which affected the absolute priority rule. 

First, BAPCPA expanded the definition of “property of the estate” in individual 

chapter 11 cases by adding § 1115. Before BAPCPA, “property of the estate” in an 

individual chapter 11 case was exclusively governed by § 541, which provides that 

early bankruptcy statute that reorganization plans be ‘fair and equitable.’ The rule has since gained 

express statutory force, and was incorporated into Chapter 11 of the Bankruptcy Code adopted in 

1978.”) (citations omitted). 

28 11 U.S.C. § 1129(b)(1) (1978) (emphasis added). 

29 Id. § 1129(b)(2)(B). 

30 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 

(2005). 

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property of the estate includes “all legal or equitable interests of the debtor in 

property as of the commencement of the case.”31 After BAPCPA, § 1115 provides that 

property of the estate in an individual chapter 11 case also includes property acquired 

postpetition and earnings from postpetition services: 

(a) In a case in which the debtor is an individual, 

property of the estate includes, in addition to the 

property specified in section 541— 

(1) all property of the kind specified in section 

541 that the debtor acquires after the 

commencement of the case but before the case 

is closed, dismissed, or converted to a case 

under chapter 7, 12, or 13, whichever occurs 

first; and 

(2) earnings from services performed by the 

debtor after the commencement of the case 

but before the case is closed, dismissed, or 

converted to a case under chapter 7, 12, or 13, 

whichever occurs first. 

Second, BAPCPA amended Bankruptcy Code § 1129(b)(2)(B) to account for § 

1115. Post-BAPCPA, Bankruptcy Code § 1129(b)(2)(B) allows a debtor to satisfy the 

absolute priority rule even if the debtor retains the property included in the estate 

under § 1115: 

(i) the plan provides that each holder of a claim of such 

class receive or retain on account of such claim 

property of a value, as of the effective date of the 

plan, equal to the allowed amount of such claim; or 

(ii) the holder of any claim or interest that is junior to 

the claims of such class will not receive or retain 

under the plan on account of such junior claim or 

interest any property, except that in a case in which 

31 11 U.S.C. § 541(a). 

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the debtor is an individual, the debtor may retain 

property included in the estate under section 1115, 

subject to the requirements of subsection (a)(14) of 

this section.32

The Debtor’s plan does not pay unsecured creditors in full. To the contrary, it 

pays a comparatively paltry sum; less than four cents on the dollar. Yet, the Debtor 

proposes to retain the exempt Greenboro property and Ford F-250, the non-exempt 

watches, and $12,060 in his debtor-in-possession account. 

At the Debtor’s confirmation hearing, the U.S. Trustee pointed out that courts 

have long disagreed over whether the absolute priority rule precludes a debtor from 

retaining exempt property, and since the passage of BAPCPA, a split of authority has 

developed over whether the absolute priority rule continues to apply in individual 

chapter 11 cases. For the reasons that follow, the Court concludes that the absolute 

priority rule continues to apply in individual chapter 11 cases, it does not preclude 

debtors from retaining exempt property, but it does preclude them from retaining 

non-exempt property other than property described in § 1115. 

A. The absolute priority rule applies in individual chapter 11 

cases. 

As part of BAPCPA, Congress amended Bankruptcy Code § 1129(b)(2)(B)(ii)—

the absolute priority rule—to provide that, even if a plan does not pay unsecured 

creditors in full, the debtor may still “retain property included in the estate under 

section 1115,” causing a split of authority over what Congress meant by that phrase.33 

32 11 U.S.C. § 1129(b)(2)(B)(i) – (ii) (emphasis added). 

33 Compare Friedman v. P+P, LLC (In re Friedman), 466 B.R. 471, 482 – 83 (9th Cir. BAP 2012); SPCP 

Grp., LLC v. Biggins, 465 B.R. 316, 322–23 (M.D. Fla. 2011); In re Shat, 424 B.R. 854, 865 – 68 (Bankr. 

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Cases adopting the “broad view” have concluded that Congress intended for § 

1115 to subsume § 541: property of the estate included in the estate under § 1115 

includes all the § 541 property of the estate plus the property added by § 1115 

(property of the kind specified in § 541 that is acquired postpetition and earnings for 

postpetition services).34 Under that “broad view,” then, an individual chapter 11 

debtor can retain—without paying unsecured creditors in full—all property of the 

estate, whether it is acquired prepetition or postpetition. In other words, under the 

“broad view,” Congress effectively abrogated the absolute priority rule in individual 

chapter 11 cases.35

D. Nev. 2010); In re Johnson, 402 B.R. 851, 852 – 53 (Bankr. N.D. Ind. 2009); In re Roedemeier, 374 

B.R. 264, 275–76 (Bankr. D. Kan. 2007); In re Tegeder, 369 B.R. 477, 479 – 80 (Bankr. D. Neb. 2007) 

with In re Lively, 717 F.3d 406, 409 (5th Cir. 2013); Dill Oil Co., LLC v. Stephens (In re Stephens), 704 

F.3d 1279, 1286 – 87 (10th Cir. 2013); In re Maharaj, 681 F.3d 558, 568–69 (4th Cir. 2012); In re 

Martin, 497 B.R. 349, 357 (Bankr. M.D. Fla. 2013); In re Lee Min Ho Chen, 482 B.R. 473, 481 – 82 

(Bankr. D.P.R. 2012); In re Arnold, 471 B.R. 578, 588 – 89 (Bankr. C.D. Cal. 2012); In re Lindsey, 453 

B.R. 886, 903 (Bankr. E.D. Tenn. 2011); In re Kamell, 451 B.R. 505, 512 (Bankr. C.D. Cal. 2011); In re 

Draiman, 450 B.R. 777, 821 – 22 (Bankr. N.D. Ill. 2011); In re Walsh, 447 B.R. 45, 48 (Bankr. D. Mass. 

2011); In re Karlovich, 456 B.R. 677, 680 – 81 (Bankr. S.D. Cal. 2010); In re Gelin, 437 B.R. 435, 441 

(Bankr. M.D. Fla. 2010); In re Mullins, 435 B.R. 352, 360 – 61 (Bankr. W.D. Va. 2010); In re Gbadebo, 

431 B.R. 222, 228–30 (Bankr. N.D. Cal. 2010). 

34 See, e.g., In re Friedman, 466 B.R. at 482 (“Section 1115’s identification of estate property consists 

of the property contained in § 541 and the two post-petition acquired assets—newly acquired property 

and income.”); In re Shat, 424 B.R. at 863 (“Section 1115, however, itself includes Section 541(a) 

property. Thus, ‘included’ could refer to all property Section 1115 itself references, and this would then 

be a reference to the superset of Section 541(a) property and the debtor’s postpetition service income. 

Put another way, if Section 1115 entirely supplants Section 541 by specifically incorporating it and 

adding to it, the ‘included’ has a very broad meaning, essentially exempting individuals from the 

absolute priority rule as to unsecured creditors.”). 

35 See, e.g., In re Friedman, 466 B.R. at 482 (“A plain reading of §§ 1129(b)(2)(B)(ii) and 1115 together 

mandates that the absolute priority rule is not applicable in individual chapter 11 debtor cases.”); In 

re Tegeder, 369 B.R. at 480 (“Since § 1115 broadly defines property of the estate to include property 

specified in § 541, as well as property acquired post-petition and earnings from services performed 

post-petition, the absolute priority rule no longer applies to individual debtors who retain property of 

the estate under § 1115.”). 

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Under the “narrow view,” courts have concluded that § 1115 was intended only 

to add certain property to the estate: property of the kind specified in § 541 that is 

acquired postpetition and earnings for postpetition services.36 Courts adopting the 

“narrow view” have concluded that when Congress amended § 1129(b)(2)(B)(ii) to 

allow an individual chapter 11 debtor to retain “property included in the estate under 

section 1115,” it only intended to allow an individual debtor to retain the property 

that § 1115 added, not the rest of the estate’s property.37

To date, the Eleventh Circuit has not considered this issue. But all the circuit 

courts of appeal that have considered it—the Fourth, Fifth, Sixth, Ninth, and Tenth 

Circuits—have adopted the “narrow view.”38 This Court likewise adopts the “narrow 

view.” 

36 See, e.g., In re Lively, 717 F.3d at 410 (“[Section] 1115 expressly states that property is being ‘added’ 

to that comprised by § 541; the section does not supersede § 541 property, any more than ‘2’ supersedes 

‘3’ when added to it.”); In re Stephens, 704 F.3d at 1285 (“[T]he narrow view holds that § 1115 merely 

adds to—but does not replace—§ 541’s definition of estate property for individual debtors.”); In re 

Maharaj, 681 F.3d at 568–69 (“On one view, the phrase “included in” means the equivalent of “added 

to,” since property of the estate has long been defined under § 541.”). 

37 See, e.g., In re Martin, 497 B.R. at 357 (“[T]he Court concludes that the ‘property specified in § 541’ 

is not the property added under § 1115 that the debtor may keep under the exception to the absolute 

priority rule now contained in § 1129(b)(2)(B)(ii). The property that is added by § 1115 is limited to the 

earnings from post-petition services described in § 1115(a)(2). And that is the property excepted from 

the absolute priority rule by the amendment to § 1129(b)(2)(B)(ii). As to other property, the absolute 

priority rule continues to apply as it did before the BAPCPA Amendments.”); In re Gelin, 437 B.R. at 

442 – 43 (“The changes to § 1129(b)(2)(B)(ii) under BAPCPA did not entirely exempt individual 

Chapter 11 debtors’ plans from the absolute priority rule. Individual debtors in Chapter 11 cases can 

retain their post-petition assets and earnings. But they cannot cram down a plan that contemplates 

retention of pre-petition assets unless they get acceptances from unsecured creditors or pay them in 

full. The absolute priority rule of § 1129(b)(2)(B)(ii) still mandates this result.”). 

38 Zachary v. Cal. Bank & Trust, 811 F.3d 1191, 1199 (9th Cir. 2016) (“We conclude today that the 

BAPCPA amendments do not impliedly repeal the long-standing absolute priority rule.”); Ice House 

Am., LLC v. Cardin, 751 F.3d 734, 740 (6th Cir. 2014) (“For the reasons given, we think the best 

interpretation of the 2005 amendment to § 1129(b)(2)(B)(ii) is the one we adopt today. So does every 

other circuit court to have reached the issue. We therefore hold that the absolute-priority rule 

continues to apply to pre-petition property of individual debtors in Chapter 11 cases.”) (citations 

omitted); In re Lively, 717 F.3d at 410 (“The absolute priority rule, in particular, has been a cornerstone 

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1. Section 1129(b)(2)(B)(ii)’s plain and 

unambiguous language supports the “narrow 

view.” 

“The task of resolving [a] dispute over the meaning of [a statute] begins where 

all such inquiries must begin: with the language of the statute itself.”39 And when 

that language is plain and unambiguous, the Court’s task must end where it begins.40

That is because when a statute’s language is plain and unambiguous, this Court’s 

task is to enforce the statute according to its terms, except in the extraordinarily rare 

circumstance in which the statute’s language leads to “absurd” results unintended by 

Congress.41

of equitable distribution for Chapter 11 creditors for over a century. We must presume Congress was 

well aware of that rule and, in the absence of a clearer directive, modified § 1129(b)(2)(B)(ii) in order 

to refine it, not reverse it, for individual debtors.”); In re Stephens, 704 F.3d at 1287 (“Because both 

the statutory language and Congress’s intent are ambiguous, we heed the presumption against implied 

repeal. ‘[R]epeals by implication are not favored and will not be presumed unless the intention of the 

legislature to repeal is clear and manifest.’ . . . Here, the statutory language and legislative history 

lack any clear indication that Congress intended to erode a pillar of creditor bankruptcy protection. 

Especially in light of the fact that Congress has expressly repealed the [absolute priority rule] in the 

past, we decline to find an implied repeal here.”) (citations omitted); In re Maharaj, 681 F.3d at 565 

(“[F]or the reasons set forth above, we believe that Congress did not intend to abrogate the absolute 

priority rule for individual Chapter 11 debtors. The dramatic nature of such a departure from 

longstanding pre-BAPCPA law, the ambiguous language of the statutes, and the total lack of any 

indication in the legislative history of such an intent, lead us to conclude that Congress intended to 

and did preserve the absolute priority rule. Congress knows how to eliminate or partially abrogate the 

absolute priority rule; it has done so before, but did not do so again in BAPCPA.”). 

39 U.S. v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989). 

40 Id. (“In this case it is also where the inquiry should end, for where, as here, the statute’s language 

is plain, ‘the sole function of the courts is to enforce it according to its terms.’”). 

41 United States v .Garco, 54 F.4th 1274, 1283 (11th Cir. 2022) (explaining that the “absurdity” doctrine 

“permits a court to ‘depart from the literal meaning of an unambiguous statute . . . where a rational 

Congress could not conceivably have intended the literal meaning to apply,’ but that the doctrine 

applies “only under rare and exceptional circumstances”) (quoting Vachon v. Travelers Home & Marine 

Ins. Co., 20 F.4th 1343, 1350 (11th Cir. 2021) (Pryor, C.J., concurring)). 

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Section 1129(b) is plain and unambiguous and does not lead to absurd results. 

The key to understanding § 1129(b) (and § 1115) is the word “included.” Section 

1129(b)(2)(B)(ii) permits an individual chapter 11 debtor to retain “property included

in the estate under section 1115.” “Include” is a transitive verb meaning “to take in 

or comprise as a part of a whole or group.”42 So under § 1129(b)(2)(B)(ii), an individual 

chapter 11 debtor may retain the property that is “taken in” to the estate under § 

1115. 

What property is “taken in” to the estate under § 1115? By its own terms § 

1115 includes—i.e., takes in to the estate (1) property of the kind specified in § 541 

that is acquired postpetition; and (2) earnings from postpetition services.43 What 

about § 541 property? Section § 1115 says that the property “included” in the estate 

is “in addition to the property specified in section 541.” Although § 1115 references § 

541 property, § 1115 does not “take” it into the estate because that property is, by 

definition, already in the estate in all cases, including individual chapter 11 cases.44 

This Court agrees with the Fifth Circuit Court of Appeals that it is a stretch to 

read § 1115 as taking § 541 property into the estate: 

42 Include, Merriam-Webster Online Dictionary, https://www.merriam-webster.com/dictionary/ 

include. 

43 11 U.S.C. § 1115(a)(1) – (2). 

44 11 U.S.C. § 541(a)(1) (providing that subject to certain enumerated exceptions, “[t]he commencement 

of a case under section 301 302, or 303 of this title creates an estate” that is “comprised of . . . all legal 

or equitable interests of the debtor in property as of the commencement of the case”); 11 U.S.C. § 103(a) 

(providing that “[e]xcept as provided in section 1161 of this title, chapters 1, 3, and 5 of this title apply 

in a case under chapter 7, 11, 12, or 13 of this title”); Ice House Am., LLC v. Cardin, 751 F.3d 734 (6th 

Cir. 2014) (“Section 1115 cannot take into the estate property that was already there. And long before 

Congress enacted the 2005 amendments, § 541 had already brought into the estate ‘all legal or 

equitable interests of the debtor in property as of the commencement of the case.’”). 

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The case law finding ambiguity rests on the terms 

“included in” and “under,” two words not normally the 

subject of such parsing. Reading the phrase in § 

1129(b)(2)(B)(ii) to evince ambiguity seems a grammatical 

stretch, because § 1115 expressly states that property is 

being “added” to that comprised by § 541; the section does 

not supersede § 541 property, any more than “2” 

supersedes “3” when added to it.45

Sections 1115 and 1129 are unambiguous: regardless of whether unsecured 

creditors are paid in full, an individual chapter 11 debtor may retain property that is 

taken into the estate under § 1115, namely (1) property of a kind specified in § 541 

that is acquired postpetition; and (2) earnings for postpetition services. Section 541 

property—i.e., prepetition property—is not taken into the estate under § 1115. 

Therefore, § 1129(b) does not abrogate the absolute priority rule in individual chapter 

11 cases, so unless unsecured creditors are paid in full or the plan is consensual, an 

individual chapter 11 debtor may not retain such prepetition property. 

2. There is no evidence Congress intended to 

abrogate the absolute priority rule. 

Even if § 1129(b)’s language were ambiguous, the outcome would still be the 

same. This Court is faced with two interpretations of § 1129(b)—one that does not 

abrogate the absolute priority rule (the “narrow view”) and one that does (the “broad 

view”). Interpreting § 1129(b) in a way that abrogates the absolute priority rule would 

run afoul of fundamental rules of statutory interpretation. 

More than a decade ago, in Hamilton v. Lanning, the United States Supreme 

Court reaffirmed that it “will not read the Bankruptcy Code to erode past bankruptcy 

45 In re Lively, 717 F.3d 406, 410 (5th Cir. 2013). 

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practice absent a clear indication that Congress intended such a departure.”46 For 

most of the past 100 years, the absolute priority rule has been “central to the 

bankruptcy bargain.”47 Yet, as the Fourth Circuit Court of Appeals explained in In re 

Maharaj, “there is nothing in BAPCPA’s legislative history that suggests that 

Congress intended to repeal the absolute priority rule.”48 

Had Congress intended to do so, its silence would be an “odd occurrence for 

such a significant change.”49 Eighty years ago, the Supreme Court, in In re John M. 

Russell, Inc., observed that it could not “help but think that if Congress had set out 

to make . . . a major change [to the Bankruptcy Act of 1898], some clear and 

unambiguous indication of that purpose would appear.”50 More recently, in United 

States Savings Association of Texas v. Timbers of Inwood Forest Associates, Ltd., the 

Supreme Court likewise observed that “[i]t is most improbable that Congress would 

have made a major change [to the Bankruptcy Code] without specifically mentioning 

it in the legislative history.”51

46 560 U.S. 505, 517 (2010) (quoting Travelers Cas. & Surety Co. of Am. v. Pacific Gas & Elec. Co., 549 

U.S. 443, 454 (2007); Lamie v. United States Trustee, 540 U.S. 526, 539 (2004); Cohen v. de la Cruz, 

523 U.S. 213, 221 (1998)). 

47 Elizabeth Warren, A Theory of Absolute Priority, 1991 Ann. Surv. Am. L. 9, 11 (February 1992); see 

also Douglas G. Baird, Priority Matters: Absolute Priority, Relative Priority, and the Costs of 

Bankruptcy, 165 U. Penn. L. Rev. 785, 787 (March 2017) (“The absolute priority rule is the organizing 

principle of the modern law of corporate reorganizations.”). 

48 In re Maharaj, 681 F.3d 558, 572 (4th Cir. 2012). 

49 Id.

50 318 U.S. 515, 521 (1943). 

51 484 U.S. 365, 367 (1988). 

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In the past, when Congress repealed the absolute priority rule by repealing the 

“fair and equitable requirement” in Chapter XI cases, it specifically expressed its 

intent to do so. In the House Report, Congress explained that the “fair and equitable” 

requirement could not realistically be applied in Chapter XI cases, so it amended the 

relevant sections in a way that “made clear that the rule of the Boyd and Los Angeles

cases shall not be operative.”52 No such intent, however, appears in BAPCPA’s 

legislative history. 

What’s more, when Congress repealed the “fair and equitable” requirement in 

1952, it did so in a straightforward way in the statute’s text: “[c]onfirmation of an 

arrangement shall not be refused solely because the interests of a debtor, or if the 

debtor is a corporation, the interest of its stockholders or members will be preserved 

under the arrangement.”53 The same is true when, more recently, Congress repealed 

the absolute priority rule in subchapter V cases by providing that § 1129(b) “do[es] 

not apply in a case under this subchapter.”54

Had Congress intended to repeal the absolute priority rule in individual 

chapter 11 cases, it could just as easily have done so, as the Maharaj court pointed 

out, by adding the words “except with respect to individuals” at the beginning of § 

1129(b)(2)(B)(ii).55 Or it could have added that phrase to the end: “. . . the holder of 

52 H.R. Rep. No. 82–2320, 82nd Congress (1952) reprinted in 1952 U.S.C.C.A.N. 1960, 1981 – 82 

(citations omitted); In re Maharaj, 681 F.3d at 561. 

53 Pub. L. 456, 66 Stat. 420, 433 (1952). 

54 11 U.S.C. § 1181(a). 

55 In re Maharaj, 681 F.3d at 566. 

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any claim or interest that is junior to the claims of such class will not receive or retain 

under the plan on account of such junior claim or interest any property, except in a 

case in which the debtor is an individual.”56 

To adopt the “broad view,” this Court would have to accept that Congress chose 

“a startling, and most indirect, way . . . to have effected partial implicit repeal of the 

very provision that [§ 1129(b)(2)(B)(ii)] amended.”57 To borrow a phrase from 

administrative law, Congress “does not, one might say, hide elephants in 

mouseholes.”58 Because the “broad view” effects an implicit repeal of the absolute 

priority rule in individual chapter 11 cases in the most indirect way, without any 

indication from Congress of its intent to do so, the Court declines to adopt it. 

The “narrow view” provides a more natural, straightforward reading of § 

1129(b)(2)(B)(ii): even if an individual chapter 11 debtor does not pay unsecured 

creditors in full, he or she may retain property of a kind specified in § 541 that is 

acquired postpetition, as well as earnings from postpetition services. More important, 

that reading does not effect a repeal of the absolute priority rule. To the contrary, it 

“maintains the pre–2005 scope of the absolute-priority rule,”59 which is consistent 

56 Ice House Am., LLC v. Cardin, 751 F.3d 734, 739 (6th Cir. 2014) (“[W]e think it much more likely 

that, if Congress meant to except individual debtors from the absolute-priority rule, it would have 

simply amended § 1129(b)(2)(B)(ii) to say something more like the following: ‘the holder of any claim 

or interest that is junior to the claims of such class will not receive or retain under the plan on account 

of such junior claim or interest any property, except in a case in which the debtor is an individual.’”). 

57 In re Lively, 717 F.3d 406, 409 (5th Cir. 2013) 

58 Whitman v. Am. Trucking Ass’ns, 531 U.S. 457, 468 (2001). 

59 Ice House Am., 751 F.3d at 739. Pre-BAPCPA, property of a kind specified in § 541 that was acquired 

postpetition and earnings for postpetition services were not part of an individual chapter 11 debtor’s 

bankruptcy estate. Post-BAPCPA, they are. But under the “narrow view,” an individual chapter 11 

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with Congress’ silence in the legislative history. Therefore, even if § 1129(b)(2)(B)(ii) 

is ambiguous, this Court adopts the “narrow view” and concludes the absolute priority 

rule applies in individual chapter 11 cases. 

B. The absolute priority rule does not preclude individual 

chapter 11 debtors from retaining exempt property. 

Having concluded that the absolute priority rule applies in individual chapter 

11 cases, the Court must now determine whether it applies to exempt property. 

Putting aside the exception for individual cases discussed above (i.e., an individual 

chapter 11 debtor may retain postpetition property and earnings), § 1129(b) provides 

that if unsecured creditors are not paid in full, a plan is “fair and equitable” only if 

“the holder of any claim or interest that is junior to the claims of such class will not 

receive or retain under the plan on account of such junior claim or interest any 

property.”60 Although courts are unanimous that individual debtors violate the 

absolute priority rule if they receive or retain non-exempt property, courts are split 

over whether they violate the absolute priority rule if they receive or retain exempt

property.61 

can still retain that property even if unsecured creditors are not paid in full. So the scope of the 

absolute priority rule remains the same under the “narrow view.” 

60 11 U.S.C. § 1129(b) (emphasis added). 

61 Compare MJPB, Inc. v. Fross (In re Fross), 1999 WL 26886, at *11 (B.A.P. 10th Cir. Jan. 15, 1999) 

(“[W]here a debtor intends to avail itself of the protection available under Chapter 11 and pay less 

than 100% to unsecured creditors, . . . the debtor will be required to contribute all of his or her property, 

exempt or otherwise, to the extent required under § 1129(b)(2)(B)(ii) to obtain plan confirmation.”); In 

re Gosman, 282 B.R. 45, 49 (Bankr. S.D. Fla. 2002) (“In the context of an individual Chapter 11 

proceeding, there is no dispute that if the Debtor were to retain certain property of the estate, i.e., nonexempt property, then the Debtor would be in violation of the absolute priority rule if the dissenting 

class of unsecured creditors are not paid in full . . . . The foregoing result is no different where the 

Debtor proposes to retain exempt property as opposed to non-exempt property.”); In re Kovalchick, 

1995 WL 118171, at *4 (Bankr. E.D. Pa. 1995) (“Because the Debtors retain their ‘interests’ as well as 

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Courts holding that individual debtors may not retain exempt property focus 

on the words “any property.” For example, in In re Fross, the Bankruptcy Appellate 

Panel for the Tenth Circuit noted that while Congress referred to “property of the 

estate” no less than four times in § 1123, it did not do so in § 1129(b)(2)(B)(ii).62 That 

omission, the Fross court concluded, was intentional.63 The Fross court “read the fact 

the property and assets of the estate, and these interests and the estate include both exempt and 

nonexempt property, the Plans violate the [absolute priority rule].”); In re Ashton, 107 B.R. 670, 674 

(Bankr. D.N.D. 1989) (“Section 1129(b)(2)(B)(ii) says that a debtor may not retain any property without 

qualification. There is no distinction between exempt and non-exempt property.”); In re Yasparro, 100 

B.R. 91, 95 (Bankr. M.D. Fla. 1989) (“Section 1129(b)(2)(B)(ii) specifically provides to meet the absolute 

priority rule the Debtor may not retain ‘any property’ if the unsecured creditors are not to be paid in 

full. The Code section makes no distinction between exempt and non-exempt property nor as to value.) 

with In re Martin, 497 B.R. 349, 352 (Bankr. M.D. Fla. 2013) (“Although some courts have held that 

even the retention of exempt property violates the absolute priority rule, the majority (and better 

reasoned) decisions disagree, concluding that the total liquidation of an individual Chapter 11 debtor’s 

assets is not required in order to satisfy the absolute priority rule.”); In re Gerard, 495 B.R. 850, 855 

(Bankr. E.D. Wis. 2013) (“In In re Bullard, the bankruptcy court agreed that the better line of authority 

holds that the debtor’s retention of his exempt property does not offend § 1129(b)(2)(B) because such 

retention is not ‘on account of the debtor’s junior interest’ in property. Similarly, the court in In re 

Steedley, concluded that a debtor does not retain exempt property ‘on account of’ an interest junior to 

the creditors and thus does not violate the absolute priority rule by proposing to keep exempt property. 

This Court agrees and adds that the debtor’s exempt property that has been removed from the estate 

prior to confirmation is not property that is received or retained ‘under the plan’ as required for 

application of the absolute priority rule.”); In re Bullard, 358 B.R. 541, 544 – 45 (Bankr. D. Conn. 2007) 

(“There is disagreement among the cases concerning whether a chapter 11 debtor may retain his 

exempt property and still comply with Section 1129(b)(2)(B)(ii). . . . The better line of authority holds 

that the debtor’s retention of his exempt property does not offend Section 1129(b)(2)(B)(ii) because 

such retention is not “on account of . . . [the debtor’s] junior interest . . .” in property.”); In re Henderson, 

321 B.R. 550, 561 (Bankr. M.D. Fla. 2005) (“This Court in not unmindful that a Judge of this District 

in the case of In re Yasparro [ruled] that if an individual debtor retained exempt property under the 

plan, the plan violates the absolute priority rule unless all creditors receive full and complete 

satisfaction of their claims. This Court is constrained to reject the holdings of both In re Yasparro, and 

In re Gosman, and is satisfied that the individual debtor does not have to forfeit his exemption rights 

to which the debtor is otherwise entitled to in all operating Chapters of the Code as a price of obtaining 

confirmation of his or her plan of reorganization.”) (citations omitted). 

62 In re Fross, 1999 WL 26886, at *8 (“Section 1129(b)(2)(B)(ii) provides that the junior claim or interest 

holder may not receive or retain ‘any property.’ As acknowledged by the bankruptcy court, the Code is 

replete with references to either property ‘of the estate’ or ‘of the debtor.’ More to the point, in § 1123 

dealing with the contents of a Chapter 11 plan, the Code refers to property of the estate no less than 

four times.”) (citing 11 U.S.C. §§ 1123(a)(5)(A), (B), (D); (b)(4)) (citations omitted). 

63 Id. (“[W]e must view the omission of a reference to either property ‘of the estate’ or ‘of the debtor’ in 

§ 1129(b)(2)(B)(ii) as intentional.”). 

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that § 1129(b)(2)(B)(ii) does not expressly exclude exempt property to mean that the 

broad reference to ‘any property’ includes both exempt and nonexempt property.”64

The court came to the same conclusion in In re Gosman,65 the only reported 

decision on this issue in this district. In Gosman, the court reasoned that had 

Congress intended to exclude exempt property from the scope of the absolute priority 

rule, it could have used other words to modify “property”—such as “non-exempt 

property” or “property of the estate”—rather than “any.”66 The word “any,” the court 

noted, is “unlimited” in nature, meaning “every” and “all.”67 Because “any property” 

is not equivalent to “property of the estate,” and Congress omitted reference to 

“property of the estate,” the court concluded that Congress chose not to allow 

individual chapter 11 debtors to retain exempt property. 

In focusing on the words Congress did not include in § 1129(b) (i.e., “nonexempt property” or “property of the estate”), however, the courts in Fross and 

Gosman ignore the words Congress did include.68 Congress did not simply say that 

unless unsecured creditors are paid in full, the debtor cannot “receive or retain any 

property.” Had Congress said only that, this Court might be inclined to agree with 

Fross and Gosman. But Congress said that if unsecured creditors are not paid in full, 

64 Id. 

65 282 B.R. 45, 49 (Bankr. S.D. Fla. 2002). 

66 Id. 

67 Id. 

68 See id. at 48 (“Here, the Court looks no further than the words ‘any property.’”). 

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a debtor cannot receive or retain any property “under the plan on account of such 

junior claim or interest.”69 

An individual chapter 11 debtor does not retain exempt property “under the 

plan.” Bankruptcy Code § 1123 mandates that a plan provide adequate means for its 

implementation, including “retention by the debtor of all or any part of the property 

of the estate.”70 Exempt property is not property of the estate. And § 1141, which 

governs the effect of confirmation, provides that “confirmation of a plan vests all of 

the property of the estate in the debtor.”71 Thus, what a debtor retains under the plan 

is property of the estate—i.e., non-exempt property. 

Exempt property is retained under § 522. Section 522(b) specifically authorizes 

a debtor to exempt certain property from the estate.72 In short, an individual chapter 

11 debtor does not retain exempt property under the plan. Indeed, the only provision 

in the Code that talks about a debtor retaining property under the plan says that a 

debtor retains property of the estate under the plan. So § 1129(b)’s specific reference 

to property retained “under the plan” limits the absolute priority rule’s prohibition to 

property of the estate, which simply does not include exempt property. 

Moreover, individual debtors do not retain exempt property on account of their 

claim or interest. Nearly two decades ago, in In re Henderson, the court concluded 

69 11 U.S.C. § 1129(b)(2)(B)(ii) (emphasis added). 

70 11 U.S.C. § 1123(a)(5)(A) (emphasis added). 

71 11 U.S.C. § 1141(b) (emphasis added). 

72 11 U.S.C. § 522(b). 

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that an individual chapter 11 debtor does not retain exempt property on account of 

their claim or interest—a debtor “retains it as a matter of right by virtue of recognition 

of his right to exemptions.”73 Since Henderson, other bankruptcy courts have agreed 

that individual chapter 11 debtors do not retain property on account of their claim or 

interest.74 

More important, just three years ago, the Ninth Circuit Court of Appeals—the 

only Circuit Court of Appeal to address this issue—came to the same conclusion.75 In 

In re Juarez, the Ninth Circuit emphasized that “Congress must have intended the 

‘on account of’ language to have some significant meaning as well as some particular 

limiting effect.”76 As the Ninth Circuit explained, it is “‘widely accepted that property 

deemed exempt from a debtor’s bankruptcy estate revests in the debtor’ under 11 

U.S.C. § 522.”77 Therefore, the Ninth Circuit concluded that a debtor does not violate 

the absolute priority rule by retaining exempt property because a debtor “obtains 

exempt property from the bankruptcy estate by virtue of the right to exempt certain 

property under § 522, not ‘under the plan on account of [a] junior claim or interest.’”78

73 In re Henderson, 321 B.R. 550, 559 (Bankr. M.D. Fla. 2005). 

74 See, e.g., In re Martin, 497 B.R. 349, 352 (Bankr. M.D. Fla. 2013); In re Steedley, 2010 WL 3528599, 

at *3 (Bankr. S.D. Ga. 2010); In re Bullard, 358 B.R. 541, 545 (Bankr. D. Conn. 2007). 

75 836 F. App’x 557, 561 (9th Cir. 2020). 

76 Id. (quoting Bonner Mall P’ship v. U.S. Bancorp Mtg. Co. ( In re Bonner Mall P’ship), 2 F.3d 899, 

909 (9th Cir. 1993), abrogated on other grounds by Bullard v. Blue Hills Bank, 575 U.S. 496 (2015)). 

77 Id.

78 Id. (emphasis added). 

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By contrast, individual debtors do retain property of the estate on account of their 

interest (i.e., ownership interest). 

This reading also simply makes sense. The idea behind property being exempt 

and passing through bankruptcy unmolested is to allow debtors to retain property 

that state or federal law deems essential for daily living, such as a primary residence, 

tools of a trade, retirement savings, or a car. That property is no less essential in an 

individual chapter 11 than it is in an individual chapter 7. 

As explained above, when the language of a statute is plain and unambiguous, 

this Court’s task is to enforce the statute according to its terms.79 Here, the language 

of § 1129(b)(2)(B)(ii) is plain and unambiguous: unless an individual chapter 11 

debtor pays unsecured creditors in full, he or she cannot retain any property (other 

than the property included under § 1115) under the plan on account of such junior 

claim or interest. Because a debtor does not retain exempt property under a plan or 

on account of his or her junior claim or interest, an individual chapter 11 debtor does 

not violate the absolute priority rule by receiving or retaining exempt property. 

Of course, having found the absolute priority rule does apply to property of the 

estate (other than the property included under § 1115), the Debtor’s plan violates the 

rule because under it the Debtor retains the watches and cash which are prepetition, 

non-exempt, property of the estate. 

79 U.S. v. Ron Pair Enters., Inc., 489 U.S. 235, 241 (1989). 

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III. Conclusion 

In an individual chapter 11 case, a debtor may only retain three categories of 

property under § 1129(b) if unsecured creditors are not paid in full: (1) exempt 

property; (2) property of a kind specified in § 541 that is acquired postpetition; and 

(3) earnings from postpetition services. So, even though the Debtor is paying his 

unsecured creditors less than four cents on the dollar, he can retain the Greenboro 

property and the Ford F-250, which are exempt. But the Debtor cannot retain any 

portion of $12,060 that is not exempt, acquired postpetition, or is not earnings for 

postpetition services or the two watches, which are not exempt and were not acquired 

postpetition. Accordingly, it is 

ORDERED that the Debtor’s Motion for Cramdown is DENIED. However, 

the Debtor, if he so desires, may have leave to amend the plan within 30 days to 

correct this defect and seek confirmation, possibly without having to resolicit. 

### 

Copies To: 

All Parties in Interest 

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