Heritage Bank v. Woodward, No. 15-6001 (8th Cir. 2015)
Annotate this CaseDebtor, a Grand Island pathologist, filed for Chapter 7 bankruptcy relief in 2011. Heritage holds an allowed, unsecured claim of $270,566.00. In 2012, the Debtor acquired her residence from the Elliotts and signed a $169,900 promissory note and granted a security interest in their favor. The case was converted to a Chapter 11 proceeding in 2012. The Elliotts filed a proof of claim asserting secured status. The Bankruptcy Court overruled Heritage’s objection to timeliness and allowed the claim. Heritage did not appeal, but continued to object to the Elliotts’ voting on the plan as an impaired class, arguing that they had a post-petition claim. The court found that the Elliotts had an allowed claim, that the plan altered the treatment of their claim, and, that the Elliotts were an impaired class entitled to the vote. The Bankruptcy Court confirmed the Debtor's Fifth Amended Plan. The Elliotts, the sole members of their class, voted in favor of the plan. No other impaired classes voted to accept the plan. The Eighth Circuit Bankruptcy Appellate Panel reversed. Although an impaired class of claims accepted the Plan, the absolute priority rule of 11 U.S.C. 1129(b)(2)(B)(ii)' applies to prevent Chapter 11 debtors from retaining property acquired prior to the filing of the petition when not all creditors' claims will be paid in full.
Court Description: Schermer, Author, with Federman, Chief Judge, and Shodeen, Bankruptcy Judge] Bankruptcy Appellate Panel. Denial of the confirmation of the debtor's Third Amended Plan is not a final order and cannot be the subject of this appeal; the order confirming the debtor's Fifth Amended Chapter 11 Plan is appealable, and the bankruptcy court erred in confirming the Plan; as the holders of an allowed claim and sole members of the impaired class, the Elliot creditors' ratifying vote satisfied Sec. 1129(a)(10); the absolute priority rule still applies in individual Chapter 11 cases to prevent debtors from retaining prepetition property, and the bankruptcy court's confirmation order violated it. Remanded for a new confirmation hearing. [ August 12, 2015
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