Source: http://biz.law/the-circuits-agree-absolute-priority-rule-applies-in-individual-chapter-11-cases/
Timestamp: 2019-04-18 23:35:26+00:00

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BAPCPA’s limitation on the absolute priority rule in individual cases applies only to property added to the estate pursuant to § 1115 and not to § 541(a) property generally.
The decision in Zachary v. California Bank & Trust brings the Ninth Circuit in line with the four other circuits that have concluded that BAPCPA did not abrogate the absolute priority rule in individual chapter 11 cases. The Ninth Circuit joined the Fourth, Fifth, Sixth and Tenth Circuits in adopting the “narrow view” to conclude that BAPCPA’s limitation on the absolute priority rule in individual cases applies only to property added to the estate pursuant to § 1115 and not to § 541(a) property generally.
(b) earnings from services performed by the debtor after the commencement of the casebut before the case is closed, dismissed, or converted to a case under chapter 7, 12, or 13, whichever occurs first.
A significant split of authorities has developed nationally among the bankruptcy courts regarding the effect of the BAPCPA amendments on the absolute priority rule when the Chapter 11 debtor is an individual. Some courts have adopted the “broad view” that, by including in § 1129(b)(2)(B)(ii) a cross-reference to § 1115 (which in turn references § 541, the provision that defines the property of a bankruptcy estate), Congress intended to include the entirety of the bankruptcy estate as property that the individual debtor may retain, thus effectively abrogating the absolute priority rule in Chapter 11 for individual debtors. Other courts, adopting the “narrow view,” have held that Congress did not intend such a sweeping change to Chapter 11, and that the BAPCPA amendments merely have the effect of allowing individual Chapter 11 debtors to retain property and earnings acquired after the commencement of the case that would otherwise be excluded under § 541(a)(6) & (7).
The Ninth Circuit analyzed the issue as “what property may an individual chapter 11 debtor retain ‘without running afoul of the absolute priority rule’?” The “narrow” approach indicates that the property excepted from the absolute priority rule is limited to property that is added to the estate by § 1115. This raises the question: What type of excepted property may be added to the estate pursuant to § 1115?
Section 541(a), which was not amended by BAPCPA, has always included various types of property that become property of the estate after the petition is filed. These include property recovered, property ordered to be transferred to the estate,certain inheritances and similar property, proceeds of property of the estate, and property acquired after the commencement of a case.
The Fourth Circuit, followed by the Ninth Circuit, apparently reads § 1115(a) as a reference to the types property described in § 541(a)(6) & (7). Although the reference to § 541(a)(6) is likely a reference to earnings and, thus, to § 1115(a)(2), it is not clear what property of the debtor would be of a kind “that the estate acquires after the commencement of the case,” and thus encompassed by § 1115(a)(1).
e. a claim arising from a post-petition tort committed against the debtor.
Creative attorneys, and the facts that can be presented in the wild variety of individual chapter 11 cases that occur, will likely supply many more; however, it is important to remember that the inclusion of an item in § 1115(a) only means that a debtor may retain that item without violating the absolute priority rule. Whether such property can meet the requirements of the “new value exception” to the absolute priority rule remains to be determined.
 Zachary v. California Bank & Trust, 2016 WL 360519 (9th Cir. Jan. 28, 2016) (overruling In re Friedman, 466 B.R. 471 (B.A.P. 9th Cir. 2012)).
 In re Maharaj, 681 F.3d 558 (4th Cir. 2012).
 In re Lively, 717 F.3d 406 (5th Cir. 2013).
 Ice House v. Cardin, 751 F.3d 734 (6th Cir. 2014).
 In re Stephens, 704 F.3d 1279 (10th Cir. 2013).
 Section 1129(b)(2)(B)(ii) (emphasis added). No one has ever described BAPCPA as a model of clarity. Eleven years after its enactment, courts have yet to uniformly agree with how the statute is to be interpreted as written, or whether the reference to subsection (a)(14) is a scrivener’s error. Zachary v. California Bank & Trust, 2016 WL 360519 n.4.
 In re Maharaj, 681 F.3d 558, 563 (4th Cir. 2012) (footnote omitted).
 Zachary v. California Bank & Trust, at *3 (quoting In re Friedman, 466 B.R. at 487) (Jury, Bankr. J., dissenting).
 See, e.g., In re Stephens, 704 F.3d 1279 (10th Cir. 2013).
 In re Maharaj, 681 F.3d 558, 563 (4th Cir. 2012); Zachary v. California Bank & Trust, at *4.

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