In re Tegeder

• Decision Date: 23 May 2007
• Docket Number: No. BK06-80767.,BK06-80767.
• Parties: In the Matter of Paul J. TEGEDER, and Terry Lee Tegeder, Debtors.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Nebraska

369 B.R. 477

In the Matter of Paul J. TEGEDER, and Terry Lee Tegeder, Debtors.

No. BK06-80767.

United States Bankruptcy Court, D. Nebraska.

May 23, 2007.

Emmett D. Childers, Hillman, Forman, Nelson, Childers, Omaha, NE, for American National Bank.

David Grant Hicks, Pollak & Hicks PC, Omaha, NE, for Debtor.

Jerry L. Jensen, US Trustee's Office, Omaha, NE, for Patricia Fahey.

Martin P. Pelster, Croker, Huck, Kasher, DeWitt, Anderson, Omaha, NE, for Tower Group, L.L.C.

Frank M. Schepers, Lamson, Dugan & Murray, Omaha, NE, for Alan Baer & Associates, Baer Investments, Inc., Southroads Shopping Ctr. Ltd. and United Joint Venture.

Michael J. Whaley, Gross & Welch, PC, Omaha, NE, for Toyota Motor Credit Corporation.

MEMORANDUM

THOMAS L. SALADINO, United States Bankruptcy Judge.

Hearing was held in Omaha, Nebraska, on May 14, 2007, on the First Amended Chapter 11 Plan filed by Debtors (Fil.# 62), and an Objection to Confirmation of Plan filed by the U.S. Trustee (Fil.# 69). David G. Hicks appeared for Debtors, Jerry L. Jensen appeared for the U.S. Trustee, and Frank M. Schepers appeared on behalf of United Joint Venture, et al. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. § 157(b)(2)(L).

For the reasons discussed below, I find that the absolute priority rule of 11 U.S.C. § 1129(b)(2)(B)(ii) does not prevent confirmation of a plan where the individual debtors are retaining pre- and post-petition assets.

Background

Debtors own and operate two businesses and most of their debt is business debt. This case was commenced as a Chapter 11 proceeding on June 5, 2006. On March 9, 2007, Debtors' First Amended Chapter 11 Plan (Fil.# 62) and Disclosure Statement (Fil.# 63) were filed. The Disclosure Statement was approved by an Order dated April 2, 2007 (Fil.# 64).

The amended plan provides for eight classes of creditors. Classes 1, 2, and 3 are unimpaired secured creditor classes. Classes 4-8 are impaired under the amended plan. According to the balloting summary attached as Exhibit A to the affidavit of Debtors' counsel in support of the plan (Fil.# 73), the plan was either accepted (or in the case of unimpaired creditors, deemed accepted) by all classes other than Class 7, the general unsecured creditor class. In that class, three ballots were cast, all of which rejected the plan.

The amended plan provides for payment to general unsecured creditors on a pro rata basis "from the amount of money available — considering Debtors' Schedules `I' and `J', the monthly payment obligation to Classes 4, 5, 6 and 8, and the Debtors' obligations pursuant to IRS Notice 2006-83 — without interest, in quarterly installments, over a period of three years, commencing upon the completion of payment of allowed secured, priority, stipulated and administrative claim payments as provided in this Plan." The Disclosure Statement indicates that such payments will be made between the 84th and 120th months of the 120-month plan. Debtors' counsel argues that the foregoing provision is intended to pay unsecured creditors the full amount of Debtors' disposable income in the last three years of a 10-year plan.

The U.S. Trustee does not dispute that all requirements for plan confirmation pursuant to 11 U.S.C. § 1129(a) have been satisfied, except for § 1129(a)(8), which provides that each class must have either accepted the plan or is not impaired under the plan. Since Class 7, the general unsecured creditor class, did not accept the plan and is impaired under the plan, the plan may only be confirmed pursuant to the "cram down" provisions of 11 U.S.C. § 1129(b). The question presented in this case is whether the absolute priority rule of 11 U.S.C. § 1129(b)(2)(B)(ii), as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"), prevents confirmation of a plan under which Debtors are retaining assets.

Discussion

When an impaired class has rejected a plan, the plan can still be confirmed under the cram down provisions of 11 U.S.C. § 1129(b), which provides as follows:

(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.

(2) For purposes of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:

... (B) With respect to a class of unsecured claims —

(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 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.

Thus, in order to be confirmed under the cram down provisions, the plan must not discriminate unfairly and be fair and equitable with respect to each impaired class rejecting the plan. In order to be fair and equitable, the unsecured claims must be paid in full or the absolute priority rule of 11 U.S.C. § 1129(b)(2)(B)(ii) must be followed. The U.S. Trustee argues that the rights and interests of Debtors are junior to the claims of the unsecured creditors class and, therefore, Debtors cannot confirm a plan under which they retain any property under the absolute priority rule. In this case, Debtors are retaining all of their property, both pre-petition and post-petition property and earnings.

One of the BAPCPA changes to the Code created an exception to the absolute priority rule by stating "except that in a case in which the debtor is an individual the debtor may retain property included in the estate under section 1115 ...."

Section 1115 is a new section added by BAPCPA, which provides as follows:

§ 1115. Property of the estate

(a) In a case in which the debtor is an individual, property of the estate includes, in addition to the property...