25 No 1 J Bankr L And Prac NL Art 2

Lee, Janine 2/23/2016
For Educational Use Only
25 No. 1 J. Bankr. L. & Prac. NL Art. 2, 25 No. 1 J. Bankr. L. & Prac. NL Art. 2
© 2016 Thomson Reuters. No claim to original U.S. Government Works. 1
25 No. 1 J. Bankr. L. & Prac. NL Art. 2
Norton Journal of Bankruptcy Law and Practice
Volume 25, Issue 1
February 2016
Norton Journal of Bankruptcy Law and Practice
Making Chapter 11 Work for Individual Debtors, While Ensuring Fairness to Creditors
By Janine Lee *
Table of Contents
I. INTRODUCTION
II. CONGRESSIONAL INTENT TO FOSTER REPAYMENT OF DEBTS
III. SYMMETRY BETWEEN CHAPTER 11 AND CHAPTER 13 PROVISIONS
IV. CONGRESS SHOULD ABROGATE THE ABSOLUTE PRIORITY RULE FOR INDIVIDUALS
A. Divergent Views of the Absolute Priority Rule
B. The Narrow View and Analysis
C. The Broad View and Analysis
D. The Friedman and Shat Decisions
E. Abrogation of the Absolute Priority Rule Facilitates the Goals of BAPCPA
V. AMENDMENT TO BANKRUPTCY CODE SECTION 1129(a)(15)
VI. COURTS SHOULD INTERPRET A REJECTING VOTE AS AN OBJECTION OR FEDERAL RULES
OF BANKRUPTCY PROCEDURE 3020(b) SHOULD BE AMENDED TO SO PROVIDE
A. Bankruptcy Courts Should Interpret Rejecting Votes as Objections
B. The United States Supreme Court Should Amend FRBP 3020(b)
VII. CONCLUSION
I. Introduction
Debtors who are individuals may be unable to obtain meaningful relief in bankruptcy. 1
Chapter 7 does not afford meaningful
relief to some individual debtors because it often does not enable them to retain nonexempt property, which may be essential for
a fresh start, such as the assets they employ in a small business. 2
Although Chapter 13 provides for restructuring of a debtor's
debts and allows for the debtor's retention of some essential property, certain debtors do not qualify for relief under Chapter
13 because of the debt limits it imposes. 3
As a result, many debtors who otherwise would qualify for a Chapter 13 must seek
relief in a Chapter 11 bankruptcy case. 4
Chapter 11 may also fail to provide relief for several debtors because of the application of the deeply rooted absolute priority
rule (“APR”), exclusive to Chapter 11 cases. 5
The APR precludes restructuring the debtor's debts unless either unsecured
creditors are paid in full through the plan of reorganization or the holder of any claim or interest that is junior to the unsecured
claims, including the equity interest of the debtor, will not receive anything under the plan on account of its junior claim or
interest. 6
In 2005, in connection with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”),
Congress amended sections 1129(b)(2)(B)(ii) and 1115 of the Bankruptcy Code (the “Code”), pertaining to the APR. 7
Now,
under section 1129(b)(2)(B)(ii), even if the plan does not provide for full payment of unsecured creditors' claims, an individual
Chapter 11 debtor may retain property included in the estate under section 1115. 8
Section 1115 may be read to include the
property specified by section 541(a)(1), which extends to “all legal and equitable interest of the debtor as of the petition date.” 9

Prior to these 2005 amendments, in order for a Chapter 11 debtor to confirm a plan of reorganization to which an unsecured
creditor class objected, the plan had to satisfy the APR. 10
In order to satisfy the APR, the plan had to meet the “fair and
equitable” requirement under the Code. 11
This type of nonconsensual confirmation is generally referred to as a “cramdown
plan.” 12
Before 2005, the APR applied to both corporate and individual debtors alike. 13
Thus, Chapter 11 debtors only had to
use assets that were property of the estate on the petition date to fund their plan of reorganization, but were not required to devote
any of their post petition earnings to pay unsecured creditor's claims. 14
This included virtually all of the debtor's pre-petition
assets, including pre-petition business assets that the individual debtor needed to continue in business. Under the text of the 2005
amendments, however, it is unclear precisely what property an individual Chapter 11 debtor must devote to his plan. 15
Most
courts that have addressed the issue have held that the APR still applies to individual debtors, thereby requiring such debtors to
devote most of their pre-petition and post-petition assets to payment of unsecured claims. 16
The practical implication of these
decisions is that individual Chapter 11 debtors often cannot retain pre-petition property essential to stay in business. 17
Thus, these BAPCPA amendments left many individual Chapter 11 debtors without relief under Chapter 11. 18
After
confirmation of a Chapter 11 plan, many individual debtors have few assets with which to move forward and obtain a fresh
start. 19
As the economy continues to rebound, many individuals may still seek to reorganize under Chapter 11 in order to
restructure their debts and retain business assets and properties threatened by foreclosure. The application of the APR, however,
may impede the ability of such debtors to retain valuable assets, which are essential to a successful reorganization. 20
In fact, even if a debtor is able to make payments on secured assets, the application of the APR may allow unsecured creditors
to thwart reorganization. If unsecured creditors are not paid in full or refuse to vote in favor of a plan, they can effectively block
confirmation, unless the debtor's equity is extinguished, despite a debtor's efforts, ability, and intention to make significant and
acceptable payments to secured creditors. Consequently, unsecured creditors would prevent debtors from avoiding foreclosure
on their secured debts. In such a situation, a Chapter 11 case would, in essence, turn into a case of the tail wagging the dog.
This problem calls for corrective legislation. In that connection, there are two important opinions issued by courts within the
Ninth Circuit, In re Friedman and In re Shat, which provide a template through which Congress can remedy this problem. 21
Specifically, Friedman and Shat illuminate the symmetry Congress created in 2005, when it amended provisions of the Code
pertaining to individual Chapter 11 debtors, by mirroring the provisions for Chapter 13 debtors. 22
This symmetry is significant
because it provides a model upon which the Code may be further amended, thereby removing this “absolute priority” obstacle
to confirmation for individual Chapter 11 debtors.
This is not, however, the end of the matter. In Zachary v. California Bank & Trust, the Ninth Circuit Court of Appeals noted
the “heavy penalty” an absence of the APR could impose upon unsecured creditors who are “crammed down” by individual
chapter 11 debtors. 23
Congress intended that the Bankruptcy Code would (1) provide an honest and unfortunate debtor with
a fresh start; and (2) protect creditors from abuse of the bankruptcy system by debtors. 24
Therefore, while the Code should
permit individual debtors to retain valuable pre-petition assets, unsecured creditors also deserve payment of their debts to the
extent a reorganizing debtor has available income to pay them.
Regarding the treatment of unsecured creditors' claims, the 2005 amendments also added a provision pertaining to an individual
Chapter 11 debtor's obligation to make plan payments to such creditors. 25
Under section 1129(a)(15), when the Chapter 11
debtor is an individual and the holder of an allowed unsecured claim objects to confirmation, the court may confirm a plan only

if the debtor either (a) pays the unsecured claim in full or (b) distributes projected disposable income during the entire plan
payment period, or a five-year period, “whichever is longer.” 26
For an unsecured creditor to invoke its right under section 1129(a)(15), however, it must do more than simply cast a ballot
rejecting the debtor's plan—it must affirmatively oppose the plan by filing an objection and asserting an argument predicated on
a provision of the Code. 27
Because unsecured creditors often receive only pennies on the dollar from a plan of reorganization,
it may not be financially prudent for such creditors to hire legal counsel to object to a debtor's proposed plan. This can result in
a potential windfall to individual debtors, as the failure of an unsecured creditor to object to confirmation will not trigger the
application of section 1129(a)(15), which in turn, would allow a debtor to confirm a Chapter 11 plan without compliance with
the APR or paying any of the debtor's disposable income to unsecured creditors. However, debtors often possess the means
to repay a greater portion of their debts than pennies on the dollar. This provision, therefore, does not adequately protect the
interests of unsecured creditors.
This article urges that Congress amend the Code (a) to abrogate the APR for individual debtors; and (b) to allow either a rejecting
vote or a formal objection to the plan to trigger the disposable income requirement. Alternatively, this article suggests that
bankruptcy courts, even without such amendments, should determine that an unsecured creditor's rejecting ballot is sufficient to
invoke the disposable income provision of section 1129(a)(15). Lastly, the United States Supreme Court should amend Federal
Rule of Bankruptcy Procedure 3020(b), to allow a rejecting ballot to constitute an objection. These changes would enable
individual Chapter 11 debtors to reorganize successfully by retaining valuable pre-petition assets, and would provide fair and
equitable treatment for unsecured creditors by making it easier and less costly, for such creditors to invoke the disposable
income requirement. 28
Part II explores congressional intent to require individual debtors who are financially able, to repay at least a portion of their
debts. Part III outlines the symmetry BAPCPA created between provisions pertaining to individual Chapter 11 debtors and
Chapter 13 debtors. Part IV discusses the APR, examines Friedman and Shat, and argues that an abrogation of the APR for
individual Chapter 11 debtors would help such debtors to successfully reorganize and obtain a fresh start. 29
Part V recommends
an amendment to section 1129(a)(15) and proposes that an amendment allowing either a rejecting vote or a formal objection to
trigger the disposable income requirement would be in the best interest of unsecured creditors. Part VI suggests that bankruptcy
courts, even without such amendments, should determine that an unsecured creditor's rejecting ballot is sufficient to invoke
the disposable income provision. Alternately, the United States Supreme Court should amend Federal Rule of Bankruptcy
Procedure 3020(b) to allow a rejecting ballot to constitute an objection under the Code.
II. Congressional Intent to Foster Repayment of Debts 30
In 2005, Congress enacted The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, or BAPCPA. 31
As the
title indicates, Congress sought to reform the Code with the laudable goals of preventing the abusive use of the Code, while
protecting consumers seeking relief under its provisions. 32
Accordingly, Congress sought to require debtors, who possessed
the means to do so, to repay at least a portion of their debts. 33
Congressional attempts to require debtors, who are financially able, to repay their debts, go as far back as the 1970's. In 1973,
the Commission on the Bankruptcy Laws of the United States, while endorsing the concept that repayment plans should be
fostered, ultimately concluded, “[F]orced participation by a debtor in a plan requiring contributions out of future income has so
little prospect for success that it should not be adopted as a feature of the bankruptcy system.” 34
As a result, the Bankruptcy

Reform Act of 1978 maintained that a debtor's decision to choose relief based on repayment to creditors should be “completely
voluntary.” 35
The 97th Congress revisited the issue in 1982, when the House Judiciary Committee held several oversight hearings on personal
bankruptcies. 36
A topic discussed at the hearings was a study conducted at Purdue University, which estimated that 29 percent
of consumer debtors were able to pay 100 percent of their debts over a five-year period. 37
Likewise, during the late 1990's, several bills were proposed in Congress, with the goal of requiring debtors who were able,
to repay portions of their debts. 38
In 1997, House members introduced the “Responsible Borrower Protection Bankruptcy
Act” (H.R. 2500), which set out a formula determining a debtor's ability to repay his debts. 39
In 1998, House members
introduced The Bankruptcy Reform Act of 1998 (H.R. 3150), which incorporated much of H.R. 2500 and ultimately became
the foundation for the provisions reflected in BAPCPA. 40
In March 1998, the Subcommittee on Commercial and Administrative Law of the House Judiciary Committee began formal
consideration of H.R. 3150. 41
The Subcommittee examined the results of studies that sought to quantify the percentage of
Chapter 7 debtors who were able to repay some portion of their debts. 42
On June 10, 1998, the House considered and ultimately
passed H.R. 3150, as amended. 43
The same day, the Clinton Administration issued a statement opposing the bill partly due to
the “rigid and arbitrary means test to determine whether a debtor could file to obtain a discharge of most debts under Chapter
7 or would be required to establish a repayment plan under Chapter 13 rules.” 44
On February 24, 1999, the House introduced the Bankruptcy Reform Act of 1999 (H.R. 833), which primarily consisted of text
from H.R. 3150. 45
The Subcommittee conducted hearings on H.R. 833 in March 1999, which again considered the results of
studies evaluating debtors' ability to repay their debts. 46
In May 1999, the House considered and passed H.R. 833 and once
again, the Clinton Administration expressed opposition to the bill. 47
Then in February 2005, the Senate introduced the “Bankruptcy Abuse Prevention and Consumer Protection Act of 2005” (S.
256). 48
The Senate passed S. 256 on March 10, 2005. 49
The House passed the bill in April 2005. 50
President George W.
Bush signed BAPCPA into law on April 20, 2005. 51
At the signing ceremony, President Bush stated:
Our bankruptcy laws are an important part of the safety net of America. They give
those who cannot pay their debts a fresh start. Yet bankruptcy should always be a last
resort in our legal system. If someone does not pay his or her debts, the rest of society
ends up paying them. In recent years, too many people have abused the bankruptcy
laws. They've walked away from debts even when they had the ability to repay them
(emphasis added).
… Under the new law, Americans who have the ability to pay will be required to pay back at least a portion
of their debts (emphasis added).
….
America is a nation of personal responsibility where people are expected to meet their obligations. We're
also a nation of fairness and compassion where those who need it most are afforded a fresh start. The act

of Congress I sign today will protect those who legitimately need help, stop those who try to commit fraud,
and bring greater stability and fairness to our financial system (emphasis added). 52
As the prior legislative history highlights, it has long been a goal of Congress to hold debtors accountable to repay their debts
to the extent they are able, while still affording debtors a fresh start. While there is no absolute priority requirement in Chapter
13, however; due to the perceived ambiguity in sections 1129(b)(2)(B)(ii) and 1115, Congress failed to provide clear guidance
as to what property an individual Chapter 11 debtor must devote to plan payments. 53
Importantly, as highlighted in Friedman
and Shat, BAPCPA also created symmetry between many requirements for individual debtors under Chapters 11 and 13, which
provides a blueprint for further amendments that would clarify the repayment obligation of individual Chapter 11 debtors. 54
III. Symmetry Between Chapter 11 and Chapter 13 Provisions
A number of academic articles support the result reached in Friedman and Shat, which point to the congruence BAPCPA created
between individual debtors under Chapters 11 and 13. 55
These similarities support the assertion that Congress, at least in part,
desired to treat individual Chapter 11 debtors like Chapter 13 debtors; they also create a logical model upon which Congress
can further amend the Code. Thus, a brief overview of these changes is relevant as a basis for suggesting further congressional
action that will result in treating individual debtors in Chapter 11 similarly as they are treated in Chapter 13 cases.
Prior to 2005, individual Chapter 11 debtors could reorganize “under more favorable terms than those available to chapter 13
debtors.” 56
For instance, upon objection of a trustee or allowed unsecured claim holder in a Chapter 13 case (where a trustee
is automatically appointed), Chapter 13 debtors must devote post-petition disposable income, including salary and earnings, to
their payment plans in order to satisfy creditor claims. 57
Prior to BAPCPA, in a Chapter 11 case (where the debtor serves as his
or her own trustee), individual Chapter 11 debtors had to use assets that were property of the estate on the petition date to fund
their plan but were not required to use their post-petition income to pay creditors. 58
BAPCPA eliminated this inconsistency
by amending the definition of “property of the estate” under section 1115 to include post-petition salary and earnings and post-
petition property acquisitions. 59
This definition is almost indistinguishable from the definition of property of the estate under
section 1306 for Chapter 13 debtors. 60
Congress also added the disposable income test of section 1325(b)(2) to section 1129(a)(15), necessitating, as a requirement
for confirmation, that individual Chapter 11 debtors devote disposable income to fund repayment plans—and borrowed the
definition of disposable income in Chapter 11 from section 1325(b)(2). 61
Congress concurrently revised the mandatory contents
of a plan under section 1123(a)(8) for individual Chapter 11 debtors, to nearly mimic section 1322(a)(1), which requires Chapter
13 debtors to “provide for the submission of all or such portion of future earnings or other future income of the debtor … as
is necessary for the execution of the plan.” 62
Likewise, Congress amended provisions pertaining to an individual Chapter 11 debtor's ability to amend his plan and obtain
a discharge, which parallel the Code's provisions for Chapter 13 debtors. BAPCPA added section 1127(e) to the Code, which
permits an individual Chapter 11 debtor to modify a plan of reorganization “at any time after confirmation of the plan but before
completion of payments under the plan …,” similar to a Chapter 13 debtor under section 1329(a). 63
Furthermore, prior to 2005, individual Chapter 11 debtors received a discharge of their debts upon confirmation of a plan. In
2005, however, Congress added section 1141(d)(5)(A), delaying an individual Chapter 11 debtor's discharge until completion of
all plan payments, as is the case for Chapter 13 debtors. 64
Lastly, BAPCPA added section 1141(d)(5)(B), allowing individual

Chapter 11 debtors to receive a discharge for cause after confirmation but prior to completion of all plan payments, similar to
the hardship discharge permitted in Chapter 13 cases. 65
The symmetry BAPCPA created in these provisions is logical because although individual debtors often petition as wage earners
under Chapter 13, they must resort to Chapter 11 if their debts exceed the limits permitted by Chapter 13. 66
Why, then, should
such debtors suffer from the implications of the APR, when the Code does not subject Chapter 13 debtors to the rule? An
analysis of the APR will illuminate the necessity of amending the Code to abrogate the APR for individual Chapter 11 debtors,
consistent with the treatment of debtors under Chapter 13.
IV. Congress Should Abrogate The Absolute Priority Rule for Individuals
A Chapter 11 debtor can confirm a consensual plan of reorganization by meeting the requirements of section 1129(a). 67
These
requirements include that a debtor propose a plan in good faith, the debtor's post-petition domestic support obligations must
be current and the debtor must have filed all tax returns that are due. 68
In addition, the plan must meet the “best interest of
creditors” test, which requires that creditors receive at least as much under the plan as they would receive through Chapter
7 liquidation. 69
Alternately, if the plan satisfies all requirements under section 1129(a), except for the voting requirement, a
court may still confirm the plan as long as it is, among other things, fair and equitable. 70
In order for a nonconsensual plan
to be fair and equitable, it must satisfy the APR. 71
A. Divergent Views of the Absolute Priority Rule
Section 1129(b)(2)(B) provides that, a nonconsensual plan is fair and equitable (and thus confirmable) if:
(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 …(emphasis added) (the “§
1129(b) Exception”). 72
The crux of the APR debate revolves around the scope of the § 1129(b) Exception. 73
Prior to 2005, “property of the estate” of
a Chapter 11 debtor did not include property or earnings acquired post-petition. Therefore, both an individual and a corporate
debtor under Chapter 11 could retain their post-petition assets, free of absolute priority preclusion. 74
The BAPCPA amendment
to section 1115 changed the status quo by adding an individual Chapter 11 debtor's post-petition earnings and post-petition
acquired property as property of the estate. 75
Thus, since the 2005 amendment, section 1115—property of the estate, reads:
(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. (emphasis added). 76
In light of this BAPCPA amendment, courts have struggled to decipher exactly what property is “included” in the estate of
an individual Chapter 11 debtor and what property such debtors “may retain” under section 1129(b)(2)(B)(ii). 77
Specifically,
courts are divided over whether section 1115 includes pre-petition property. 78
The majority of courts have held that Congress
intended to allow individual Chapter 11 debtors to retain only post-petition earnings and post-petition property (the “narrow
view”), while a minority have held that all of the debtor's pre-petition and post-petition property is excepted from the operation
of the APR (the “broad view”). 79
Courts that apply the broad view hold that the APR no longer applies to individual Chapter 11 debtors. This allows such
debtors to retain pre-petition assets and still confirm a nonconsensual plan without providing payment in full to objecting senior
creditors, including unsecured creditors. For instance, the broad view would allow individual debtors to retain business assets,
allowing them to continue to generate much needed income to move forward after bankruptcy. Alternately, under the narrow
view, the APR continues to apply to individual Chapter 11 debtors, resulting in the requirement that they devote both pre-
petition and post-petition property to fund their plan of reorganization. This would result in the loss by many debtors of their
business assets; thereby impeding their ability to generate the income necessary to fund a plan of reorganization and obtain
a fresh start. Because an application of the APR can have devastating implications for individual debtors, while affording
unsecured creditors significant leverage and control in Chapter 11, the APR may present the greatest challenge to such debtors'
ability to reorganize successfully. 80
B. The Narrow View and Analysis
In finding that the APR still applies to individual Chapter 11 debtors, some courts base their support of the narrow view on
perceived ambiguity in the relevant statutes. For instance, in In re Maharaj, the Fourth Circuit Court of Appeals found the
language of section 1129(b)(2)(B)(ii) to be ambiguous and therefore reviewed the legislative history behind the amendment. 81
Maharaj concluded there “[I]s nothing in the BAPCPA's legislative history that suggests that Congress intended to repeal the
APR.” 82
Thus, arguments for the narrow view rest largely upon perceived ambiguity in the language of the statutes, the lack
of relevant legislative history, and the presumption against implied repeal. 83
In 2014, the United States Bankruptcy Court for the District of Connecticut, in the case of In re Lucarelli, adopted the narrow
view, concluding that BAPCPA modified, but did not eliminate the APR in individual Chapter 11 cases. 84
Lucarelli determined
the language in the § 1129(b) Exception to be ambiguous, and based on relevant canons of statutory interpretation and the lack
of legislative history, concluded the broad view would result in an implied repeal of the APR. 85
Lucarelli, however, succinctly
illuminated the conundrum faced by individual Chapter 11 debtors, stating:
This holding should not be read as a dismissal of very real concerns and reservations
regarding the practical impact and implications of adopting the narrow view. The
court notes that when the real—world implications of each view are compared, the
broad view leads to a more practical and functional result in individual Chapter 11
cases. The narrow view will have the practical effect of making confirmation of a
nonconsensual plan in an individual Chapter 11 case highly unlikely, if not virtually
impossible (emphasis added).

….
Indeed, the narrow view effectively requires an individual debtor whose liabilities exceed the Chapter 13
debt limits, and whose creditors will not consent to less than full payment of their claims, to undergo
the functional equivalent of a liquidation. Additionally, as is true in this case, debtors in many individual
Chapter 11 cases have a pre-petition ownership interest in a business that is their primary source of
income. How can liquidating a debtor's primary source of post-petition disposable income—his business—
be reconciled with maximizing the amount returned to creditors under Section 1129(a)(15)? It appears that
the two cannot be reconciled in a way that maximizes the return to creditors and allows an individual debtor
to successfully reorganize under Chapter 11 in the absence of a consensual plan (emphasis added). 86
This poignant observation from Lucarelli underscores the incompatibility of the Code with regard to a practical application of
the APR, especially in light of the disposable income requirement; and the resulting obstacle the APR places upon an individual
Chapter 11 debtor's ability to reorganize successfully. 87
A Sixth Court decision addressing the applicability of the APR to individual Chapter 11 debtors, while concluding that the
narrow view is the proper one, further highlights the impediment the APR presents to such debtors. In Ice House America, LLC
v. Cardin, the Sixth Circuit Court of Appeals concluded the APR applies to individual Chapter 11 debtors, thus only allowing
the debtor to retain his post-petition property. 88
Charles Cardin filed a petition for reorganization under Chapter 11 of the Code three years after creditor Ice House America
(“IHA”) obtained several judgments against him. 89
Cardin's pre-petition property included his home, eight ice-making
machines (with which he conducted his business), a vehicle and other personal property. 90
As two of Cardin's assets were
over-secured, he had approximately $200,000 in equity at the time of filing his case. 91
Alleging the plan violated the absolute-
priority rule, IHA objected to confirmation of the plan, because it would allow him to retain his pre-petition assets while failing
to pay IHA in full. 92
The Bankruptcy Court for the Eastern District of Tennessee eventually confirmed Cardin's plan, allowing him to retain most
of his pre-petition assets and to pay IHA $124,000 towards its claim of $1.5 million. 93
This resulted in a payment of less
than 10 cents on the dollar to IHA. 94
The main issue on appeal was whether BAPCPA abrogated the absolute-priority rule for
individual debtors. 95
Thus, the Sixth Circuit analyzed whether Cardin could retain his pre-petition and post-petition property
and still confirm a non-consensual plan under Chapter 11. 96
Ice House began its analysis by discussing the APR, describing the rule as “a cornerstone of equitable distribution for Chapter
11 creditors for over a century.” 97
The court ultimately concluded that the use of the word “includes” in section 1115 naturally
reads as ‘property that § 1115 takes into the estate’, as opposed to property that § 1115 contains in the estate,” (emphasis
added). 98
Because “[S]ection 1115 cannot take property into the estate that was already there,” the court determined that Section
1115 “[T]akes into the estate” only post-petition property. 99
Thus, the court held that when unsecured creditors are not fully
paid, an individual Chapter 11 debtor may only retain property acquired after commencement of the case. 100
Acknowledging
the difficulty this conclusion presents, the Sixth Circuit observed:
[A]n individual debtor in Chapter 11 is hit by a “double whammy:” he must dedicate at least five years'
disposable income to the payment of unsecured creditors, and—unlike a debtor in Chapter 13—is also

subject to the APR (and thus cannot retain any pre-petition property) if he does not pay those creditors in
full (emphasis added). 101
Like Lucarelli, Ice House also also highlighted the hardship an application of the APR presents to individual Chapter 11 debtors
under the narrow view, although it adopted that view. 102
The most recent circuit to address the APR issue was the Ninth
Circuit. In Zachary v. California Bank & Trust, the Ninth Circuit Court of Appeals overruled In re Friedman, holding, “the
BAPCPA amendments do not impliedly repeal the long-standing absolute priority rule.” 103
In Zachary, joint individual debtors
proposed a plan paying California Bank & Trust $5,000 on its claim of nearly $2,000,000. 104
The bankruptcy court sustained
the bank’s objection, holding that “the absolute priority rule still prevails” in individual chapter 11 cases post-BAPCPA. 105
The bankruptcy court then certified the debtors’ appeal directly to the Ninth Circuit. 106
Zachary discussed Friedman and Ice House, 107
noting the basis on which each court arrived at its conclusion regarding the
scope of the § 1129(b) Exception; ultimately agreeing with Ice House. Zachary opined that the history of the APR “also
strongly supports the narrow view” because Congress previously repealed the APR, and then subsequently reinstated it. 108
Thus, Congress “demonstrate[ed] that when it intends to abrogate the rule, it knows how to do so explicitly.” 109
Zachary then addressed the language in Friedman and Shat, with regard to the congruence between chapter 11 and chapter
13 provisions in the Code. 110
“But,” the court concluded, “[i]f the BAPCPA amendments were intended to abrogate the
absolute priority rule for chapter 11 individual debtors, Congress could have achieved that goal in a far more straightforward
manner.” 111
For instance, Congress could have increased the debt limits for Chapter 13 debtors to “usher[] more individuals
into that regime,” had it so intended. 112
Notably, Zachary concludes by acknowledging the “double whammy” visited upon
individual chapter 11 debtors because of application of the APR. 113
In 2013, the Fifth Circuit Court of Appeals adopted the narrow view in the case of In re Lively, concluding that “[A] plain
reading of § 1129(b)(2)(B)(ii) in light of § 1115(a) is that both provisions were adopted when BAPCPA was passed in order to
coordinate individual debtor reorganization cases to some extent with Chapter 13 cases, whose debt limit may throw debtors...
into a chapter 11 reorganization (emphasis added).” 114
As highlighted by Friedman and Shat, the narrow view is not consistent
with the coordination referred to by Lively between individual Chapter 11 and 13 cases, because Chapter 13 debtors are not
subject to the APR. By contrast, the broad view presents the only viable way to assuage the “double whammy” suffered by
individual Chapter 11 debtors, thereby improving their chance to obtain a fresh start. 115
C. The Broad View and Analysis
The broad view, as promulgated by Friedman and Shat, is based on the notion that, by referring to section 1115 in section 1129(b)
(2)(B)(ii), Congress intended to allow individual Chapter 11 debtors to retain the entire bankruptcy estate, thus abrogating
the APR for individual Chapter 11 debtors. 116
In arriving at the broad view, some courts rely on a plain-meaning analysis,
concluding that the plain meaning of section 1115 and section 1129(b)(2)(B)(ii), when read together, is that the APR is not
applicable to individual Chapter 11 debtors. 117
Although the broad view is the minority view among the courts, it affords
a meaningful opportunity for individual Chapter 11 debtors to reorganize their debts, because it allows them to retain assets
necessary to continue their pre-petition business operations after confirmation. 118

In 2013, in In re O'Neal, the United States Bankruptcy Court for the Western District of Arkansas, adopted the broad view. 119
In support of the broad view, O'Neal stated:
The weakness of the narrow view is illustrated if one were to ask the question: “If Congress was not
attempting to write out of individual Chapter 11 cases the APR, what was the purpose of all of the BAPCPA
amendments to Chapter 11, including section 1115, which were obviously borrowed from Chapter 13?”
Chapter 13 has no APR and would not be of much use if it did (emphasis added) ….
….
Section 1115 is written word for word like section 1306 and courts interpreting section 1306 have never
bifurcated this section into two species of property as the narrow view does in individual Chapter 11. To
read section 1115 and section 1129(b)(2)(B)(ii) as exempting only future income from the APR renders
ineffective any practical application of section 1115, especially in light of the additional requirements of
section 1129(a)(15)(B). 120
Thus, O'Neal recognized the resulting deficiency in the application of the narrow view, especially in light of the symmetry
BAPCPA created between individual debtors under Chapters 13 and Chapter 11.
D. The Friedman and Shat Decisions
Friedman and Shat are significant to the thesis of this article for two reasons: 1) they articulate the reasoning behind the broad
view, which provides individual debtors with a means to retain assets necessary for a successful reorganization; and 2) they
highlight the ways Congress created symmetry between individual Chapter 11 and 13 debtors under BAPCPA. This symmetry
offers a basis upon which Congress can further amend the Code to abrogate the APR with respect to individual debtors in
Chapter 11 cases. 121
Admittedly, In re Zachary overruled Friedman with regard to its holding that the APR does not apply in
individual chapter 11 cases. 122
Zachary likewise abrogated Shat for the same reason. 123
Nonetheless, the policy rationales
articulated in Friedman and Shat remain a sound basis for the arguments advanced in this article.
In In re Shat, the United States Bankruptcy Court for the District of Nevada held that BAPCPA abrogated the APR for individual
Chapter 11 debtors. 124
As the basis of its holding, Shat relied largely on the rehabilitative aim of Chapter 11, the similarities
BAPCPA created between individual debtors under Chapters 13 and 11, and the “relatively simple wording” of the relevant
provisions. 125
Martin and Anjanette Shat filed for bankruptcy protection under Chapter 11 of the Bankruptcy Code on November 5, 2008. 126
At the time of filing, the Shats owned a dry cleaning business and several residential investment properties. 127
Like many
other homeowners in 2008, the Shats' properties were underwater and they were unable to make the payments required by the
mortgages encumbering their assets. 128
The Shats' plan established eight classes of creditors. 129
Of the eight classes, seven classes either accepted the plan or did
not vote. 130
The only member of Class 5, which consisted of unsecured creditors, to vote on the plan, rejected the Shats'
plan. 131
Under the plan, the Shats proposed to pay Class 5 creditors 10% of their allowed claims without interest over a five-
year period. 132
Upon confirmation, the plan allowed the debtors to retain their assets, subject only to outstanding liens not

modified by the plan. 133
The specific question before the court was whether the Shats could retain their dry cleaning business
assets without paying their unsecured creditors in full. 134
Following a discussion of the history of the BAPCPA amendments pertaining to individual Chapter 11 debtors, Shat concluded,
“The template for this effort was to adopt and adapt as much of chapter 13 as possible with respect to individual debtors in
chapter 11 (emphasis added).” 135
The court then outlined the BAPCPA amendments aligning Chapter 13 and Chapter 11
provisions, concluding, “What remains is a sort of hybrid chapter 13, in which many of the provisions of chapter 13 sit uneasily
in chapter 11.” 136
With regard to the language of the § 1129(b) Exception, Shat discussed whether “included” narrowly refers only to post-petition
income from services, or broadly also includes all (pre-petition) property originally specified in section 541, in addition to post-
petition property and income. 137
The court pointed out that the addition of section 1115 was relevant, because a debtor cannot
retain “property or income that the Code requires to be committed to plan payments.” 138
Thus, a narrow reading [of section
1129(b)(2)(B)(ii)] “only covers the debtor's income starting five years after confirmation.” 139
This is so because for five years
after confirmation, the debtor is required to devote his post-petition income to plan payments and can only retain the money
necessary for reasonable living expenses. 140
In its discussion of statutory interpretation, Shat stated, “[S]tatutory language cannot be construed in a vacuum. It is a
fundamental canon of statutory construction that the words of a statute must be read in their context and with a view to their
place in the overall statutory scheme.” 141
It is with this perspective the court noted:
Given the relatively straightforward reading of the statute supporting the broader reading, and the general
rehabilitative aim of chapter 11, the court understands the phrase, “in addition to the property specified in
541” to mean that Section 1115 absorbs and then supersedes Section 541 for individual chapter 11 cases.
This construction, in turn leads to the position that Section 1129(b)(2)(B)(ii)'s exception extends to all
property of the estate, including such things as prepetition ownership interest of nonexempt property. This
conclusion is supported by the revisions in 2005 to bring individual chapter 11's more in line with chapter
13. 142
Shat acknowledged the broad interpretation is “[N]ot without problems,” as it “[E]ssentially reads the APR out of individual
chapter 11 cases, but does so in a convoluted manner—arguably indicative that Congress did not fully appreciate the effect of
the language it chose.” 143
While acknowledging, “[T]he APR has long been a feature of American bankruptcy law,” the court
aptly stated, “[I]t is not sacrosanct,” given the fact that there is no APR in Chapter 13. 144
Had Shat determined the narrow view was the proper one, the Shats would have lost the ability to retain their dry cleaning
business, the lifeblood of their means to reorganize, gain a fresh start and make payments under their Chapter 11 plan. Instead,
they were able to proceed with the operation of their business, while paying debtors in accordance with the terms of their plan.
Thus, Shat highlights the broad view and emphasizes a salient feature of the BAPCPA amendments—the similarities between
sections pertaining to individual Chapter 11 and Chapter 13 debtors.
Like the Shats, the Friedmans were debtors with business and property interests, whose ability to retain their equity ultimately
resulted in a successful reorganization. The Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) decided Friedman in
2012, two years after the Shat decision. 145
Friedman arose out of an appeal from the United States Bankruptcy Court for the

District of Arizona, denying confirmation of the debtors' second amended plan and converting their case to one under Chapter
7 of the Code. 146
As in Shat, the main issue on appeal was whether the APR applies to individual Chapter 11 debtors. 147
The Friedmans were entrepreneurs who founded and operated several technology and internet-related businesses. 148
Because
of several failing businesses, the Friedmans possessed substantial tax liabilities and unpaid business debts. 149
In 2007, a
creditor began foreclosure proceedings on a piece of real property owned by the Friedmans in Colorado. 150
Consequently, the
Friedmans filed an individual case under Chapter 11 of the Code. 151
In their bankruptcy schedules, the Friedmans valued the Colorado property at $750,000, declaring the property over-encumbered
by three liens. 152
Other assets of the Friedmans included interest in several businesses and a family trust. 153
At the time of
filing, the Friedmans' unsecured debt totaled $359,000. 154
The bankruptcy court eventually granted a motion for relief from stay
to the creditor holding the first lien position on the Colorado property, allowing the creditor to proceed with foreclosure. 155
As
a result, the creditor foreclosed on the property, resulting in wiping out the mortgage held by P&P LLC, the second lienholder,
and its claim becoming an unsecured claim. 156
The Friedmans' second amended plan (the “Plan”) proposed that upon confirmation, they would retain their assets, including
equity in their business assets, continue to work, contribute their disposable income to the Plan, and make monthly payments of
$634 to unsecured creditors. 157
As a result of the foreclosure, P&P, LLC was now the Friedmans' largest unsecured creditor. 158
P&P voted to reject the Plan and filed an objection under section 1129(b)(2)(B)(ii), asserting the Plan violated the APR because
it allowed the Friedmans to retain valuable property interests while paying only $634 per month to unsecured creditors. 159
The Friedmans subsequently modified the Plan and proposed increased payments to unsecured creditors, anticipating increasing
revenue from their businesses. 160
At the confirmation hearing, the bankruptcy court concluded that the APR applied to
individual debtors, thus denying confirmation of the Friedman's Plan. 161
The bankruptcy court entered an order denying
confirmation and ordered the Friedmans to file a third amended plan. 162
Instead of filing a third amended plan, the Friedmans appealed the order denying confirmation of their Plan. 163
Due to their
failure to comply with the court order and the “absence of a reasonable likelihood of rehabilitation,” the bankruptcy court
ultimately converted the Friedmans' case to one under Chapter 7 of the Code. 164
The Friedmans then moved for a stay of the Chapter 7 case, pending appeal. 165
The bankruptcy court granted the stay, stating
that as a policy question, “[T]he public interest would be advanced by obtaining [a ruling from the BAP for the Ninth Circuit]
on the applicability of the absolute priority rule in an individual chapter 11 case.” 166
Like Shat, the BAP acknowledged the symmetry created between provisions pertaining to individual debtors under Chapters
13 and 11 under BAPCPA, but it primarily relied upon a plain-meaning analysis of the statutory text to arrive at its conclusion
that the broad view is the correct one. 167
Based on its plain-meaning interpretation, the BAP concluded that property of the
estate consists of both pre-petition property and post-petition property and income.” 168
The BAP found this interpretation
consistent with the “logic of plan confirmation requirements of Chapter 11.” 169
Importantly, the BAP emphasized that it would
be illogical to remove an individual debtor's means of producing disposable income, which the debtor is required to devote to
plan payments, by enforcing the APR in an individual case. 170

The BAP acknowledged the lack of relevant legislative history, but concluded that recourse to legislative history is unnecessary
in light of the plain meaning of the statute. 171
Furthermore, the Code itself “does provide significant assistance,” due to the
similarities in the Code between the Chapter 13 and Chapter 11 provisions. 172
“[C]learly, the drafters of § 1129(a)(15) tried
to create symmetry between chapters 11 and 13 for individual debtors.” 173
E. Abrogation of the Absolute Priority Rule Facilitates the Goals of BAPCPA
The broad view addresses individual Chapter 11 cases “through the lens of common sense.” 174
Common sense acknowledges
the symmetry Congress created between individual Chapter 11 and Chapter 13 cases, especially in light of the fact that the APR
originated in “early twentieth-century railroad cases” and wasn’t applicable to individual chapter 11 debtors until 1978. 175
Were it not for the debt limits imposed on Chapter 13 cases, many individual Chapter 11 debtors would file for bankruptcy
protection under Chapter 13 instead, and would not be subject to the APR. 176
Individual debtors file for bankruptcy protection for many reasons. Changes in the economy can play a major role in one's
decision to file bankruptcy. As our nation experienced a severe economic downturn in the last decade, many Americans
experienced a loss of employment and income, and therefore, an inability to satisfy their financial obligations. 177
Some, like
the debtors in Friedman and Shat, have failing or struggling businesses, an inability to retain properties, or both. Our capitalist
society encourages property ownership, business ownership and economic growth. When those ideals fail, the bankruptcy
system exists to rehabilitate individuals and entities unable to pay their debts. 178
By abrogating the APR for individual Chapter
11 debtors, Congress would foster the goal of protecting consumers and enable such debtors to retain assets necessary to
reorganize successfully and gain a fresh start.
The broad view facilitates the goals of BAPCPA by protecting consumers' ability to retain valuable assets and therefore
successfully reorganize. It is, however, necessary to address the second goal of the statute, which is to prevent abuse by debtors.
The disposable income provision of section 1129(a)(15) is one means of preventing such abuse.
V. Amendment to Bankruptcy Code Section 1129(a)(15)
It is logical to discuss the disposable income requirement in light of the APR, because, as Friedman O’Neal highlight an
enforcement of the APR may remove an individual Chapter 11 debtor's means of producing income, which he must devote to
plan payments under section 1129(a)(15). 179
The disposable income requirement is salient because, in addition to the goal of
protecting consumers, Congress enacted BAPCPA to “correct perceived abuses of the bankruptcy system.” 180
Specifically, Congress adopted the means test—”[T]he heart of … consumer bankruptcy reforms,” to ensure that “[D]ebtors
repay creditors the maximum they can afford.” 181
The means test measures a debtor's projected disposable income, central
to the application of section 1129(a)(15), which Congress added as a requirement of individual Chapter 11 cases in 2005. 182
Notably, Congress borrowed the concept of disposable income from Chapter 13, to determine an individual Chapter 11 debtor's
ability to repay his debts. 183
This section will discuss the language of section 1129(a)(15) and its implications for unsecured
creditors. It will then suggest amending the current language of section 1129(a)(15), in order to provide fair and equitable
treatment for unsecured creditors, consistent with the goals of BAPCPA.
Section 1129(a)(15) gives unsecured creditors the ability to require individual Chapter 11 debtors to devote post-petition
disposable income to their plan of reorganization. 184
As Friedman noted, this ability gives “[D]issenting creditors who are

not being fully paid under the plan absolute veto power over the plan unless the debtor contributes an amount equal to all of
his projected disposable income ….” 185
This is a powerful tool available to unsecured creditors in Chapter 11 cases, because,
upon objection to the plan, individual debtors must either pay the full value of the claim or devote projected disposable income
to plan payments for a five-year period or during the period for which the plan provides payments, whichever is longer. 186
Alternately, pursuant to section 1322, a Chapter 13 plan may not exceed five years. 187
Section 1129 provides, in relevant part:
(a) “The court shall confirm a plan only if all of the following requirements are met …
(15) In a case in which the debtor is an individual and in which the holder of an allowed unsecured claim objects
to the confirmation of the plan—
(A) the value, as of the effective date of the plan, of the property to be distributed under the plan on account of
such claim is not less than the amount of such claim; or
(B) the value of the property to be distributed under the plan is not less than the projected disposable income of
the debtor (as defined in section 1325(b)(2)) to be received during the 5-year period beginning on the date that
the first payment is due under the plan, or during the period for which the plan provides payments, whichever
is longer (emphasis added). 188
This section of the Code requires that individual Chapter 11 debtors pay disposable income to unsecured creditors. 189
To
invoke this provision, however, an unsecured creditor must do more than simply cast a ballot rejecting the debtor's plan. The
creditor must affirmatively oppose the plan based on a legal argument under the Code. 190
Section 1126(a) allows a creditor (in a Chapter 11 case) to accept or reject a plan of reorganization by ballot through a voting
process. 191
The ability to vote on a plan is an indispensable aspect of the safeguards implemented in the Code to protect
creditors' rights and ensure they are treated fairly. 192
Section 1129(a)(15), however, does not adequately protect unsecured
creditors if the APR is inapplicable and a ballot rejecting a proposed plan would not constitute an objection sufficient to
invoke the disposable income requirement. Many unsecured creditors choose to reject a proposed plan through a ballot to avoid
incurring the cost of hiring counsel to file a formal objection to the plan, and may be unaware of the potential consequences
of doing so. Such failure to object, however, may result in a windfall to the individual Chapter 11 debtor if the APR is not
applicable, as the debtor is not required to satisfy the projected disposable income provision in the absence of such objection. 193
“Absent an objection from a creditor, an individual chapter 11 plan may provide for any amount—even a minimal amount—
of disposable income to fund the plan of reorganization.” 194
This outcome is inconsistent with the goal of preventing abuse
by debtors who are able to repay at least a portion of their debts.
While the United States Trustee may object to a plan based on other requirements under the Code, such as good faith, lack of
feasibility, best interests of creditors test, or the fair and equitable test, it appears that only an unsecured creditor can require
individual Chapter 11 debtors to pay disposable income under section 1129(a)(15). 195
In a Chapter 13 case, either a trustee
or the holder of an allowed unsecured claim may object to confirmation of the debtor's plan. 196
Therefore, in Chapter 13, an
independent trustee can ensure that unsecured creditors receive fair treatment and debtors pay adequate disposable income to
fund their repayment plan. 197
In Chapter 11 cases, however, an independent trustee is not appointed. 198
As a result, to be fair to

unsecured creditors, it is necessary to allow a rejecting vote to invoke the disposable income provision in individual Chapter 11
cases. Accordingly, Congress should amend section 1129(a)(15) to allow either an objection or a rejecting vote by an unsecured
creditor to invoke the provision's requirements. 199
By doing so, Congress would provide a simple and efficient mechanism for
unsecured creditors to receive fair treatment in individual Chapter 11 cases, consistent with the goals of BAPCPA.
VI. Courts Should Interpret a Rejecting Vote as An Objection or Federal Rules of Bankruptcy Procedure 3020(b) Should
be Amended to so Provide
In the absence of an amendment to section 1129(a)(15), this section argues that bankruptcy courts should interpret rejecting
votes by unsecured creditors as objections, thereby invoking the disposable income provision. 200
Alternately, the United States
Supreme Court should amend Federal Rule of Bankruptcy Procedure 3020(b) to allow a rejecting ballot to constitute an objection
under section 1129(a)(15).
A. Bankruptcy Courts Should Interpret Rejecting Votes as Objections
While a technical objection to the plan is based on a legal argument under the Code, a rejecting ballot generally is a creditor's
expression of its disagreement with the amount of money the plan proposes to pay it back. 201
Thus, if a bankruptcy court
determines that a debtor has funds available for distribution to unsecured creditors, it would be both equitable and consistent
with the intent of Congress, to interpret a rejecting ballot as an objection under section 1129(a)(15), and require the debtor to pay
disposable income—just as he would had the creditor filed a formal objection. 202
In making this determination, a court could
require that an individual debtor provide financial statements, including bank statements and proof of income, to determine the
financial status of the debtor at the time of the confirmation hearing and could also require an evidentiary hearing in order to
determine the amount of the debtor's disposable income. 203
These requirements would also help debtors meet the feasibility
requirement of section 1129(a)(11). 204
In an individual Chapter 11 case, the court is able to review income and expense schedules filed by the debtor, which reflect
the financial condition of the debtor at the commencement of the case. 205
Furthermore, when a Chapter 11 debtor submits
a cash flow analysis to the court with his proposed disclosure statement, it discloses the funds projected to be available for
disbursement for creditors through a plan of reorganization. 206
In the absence of an objection under 1129(a)(15), however, the
debtor will not be required to commit these funds to the repayment of debts to unsecured creditors. 207
In a Chapter 13 case, a trustee is appointed to oversee the estate, and can bring an objection to the plan. 208
Because a Chapter
11 debtor is a debtor in possession, who performs the essential functions of a trustee, it may appear that this safeguard is absent
in Chapter 11 cases. 209
It is clear, however, that individual debtors have a fiduciary obligation to their creditors. 210
This
obligation places an individual Chapter 11 debtor in possession in an awkward position, as it requires him to make decisions
on behalf of the estate, which may not be in his personal best interest. 211
Therefore, by interpreting an unsecured creditor's
rejecting ballot as an objection, bankruptcy courts can ensure that unsecured creditors are treated fairly, similar to the function
of a Chapter 13 trustee. 212
By interpreting a creditor's rejecting vote as an objection under section 1129(a)(15), the courts
will also create further congruence between treatment of individual debtors under Chapters 11 and 13 by requiring individual
Chapter 11 debtors to pay disposable income when it is appropriate and fair to do so.
B. The United States Supreme Court Should Amend FRBP 3020(b)

Alternately, the United States Supreme Court should amend Federal Rule of Bankruptcy Procedure 3020(b) under its Title 28
authority of the United States Code to allow a rejecting ballot to constitute an objection under section 1129(a)(15). 213
Title 28
U.S.C.A. § 2075 grants the United States Supreme Court the power to “prescribe by general rules, the forms of process, writs,
pleadings, and motions, and the practice and procedure in cases under title 11.” 214
Further, these rules must be consistent with
the substantive provisions of the Code and acts of Congress. 215
Here, a rule allowing a ballot to constitute an objection would
be consistent with the disposable income requirement, as well as the purpose and policy behind BAPCPA. 216
Further, such
rules “shall take effect,” unless otherwise provided by law. 217
Pursuant to section 1128(b), a party in interest may object to confirmation of a Chapter 11 plan. 218
FRBP 3020(b) governs
objections to confirmation made under section 1128(b). 219
By amending FRBP 3020(b) to allow a rejecting vote to constitute
a section 1129(a)(15) objection, the United States Supreme Court would allow unsecured creditors to invoke the disposable
income requirement by their submission of a rejecting ballot.
In conjunction with an abrogation of the APR: (1) an amendment to section 1129(a)(15); (2) treatment by bankruptcy courts as
proposed herein; or (3) an amendment to FRBP 3020(b), would ensure the protection of creditors' rights and that debtors pay
the amount they can afford, while still allowing Chapter 11 debtors to retain assets necessary to reorganize successfully. 220
VII. CONCLUSION
The debate surrounding the application of the APR to individual Chapter 11 debtors will not be resolved until the Supreme Court
rules on the issue or Congress amends the Code. 221
In the meantime, Friedman and Shat provide a cogent reason for courts
to adopt the broad view of section 1115, and for Congress to amend the Code to abrogate the APR for individual debtors in
Chapter 11 cases. As both cases highlight, Congress patterned many of the BAPCPA amendments to create symmetry between
individuals under Chapter 13 and Chapter 11. Furthermore, interpreting an unsecured creditor's rejecting ballot as sufficient
to trigger the disposable income requirement would ensure fair treatment to such creditors and provide a further impetus for
courts to determine that the APR does not apply in an individual Chapter 11 case.
By fashioning the remedies suggested herein, Congress and the courts would create further symmetry between individual
Chapter 11 debtors and Chapter 13 debtors, while advancing the goals of BAPCPA to prevent abuse and protect consumers.
This would result in treating individual Chapter 11 debtors “through the lens of common sense” and “in a way to facilitate the
goals of the statute,” while ensuring fairness to creditors. 222
* Juris Doctor Candidate, 2016, William S. Boyd School of Law at the University of Nevada, Las Vegas. The author would like to
thank her family for their prayers, love and support; Professor Nancy Rapoport, who has been a constant source of encouragement
and strength, both prior to and during law school, as well as an unparalleled model of hard work and excellence; DeShun Harris, her
extraordinary mentor in the study of law and legal writing; and Professor Richard Lieb, the Editor-in-Chief of the Norton Journal of
Bankruptcy Law and Practice, for his assistance and consideration.
Footnotes
1 The Bankruptcy Code does not define the term “individual,” however, for the purposes of this article, it shall refer to a “flesh-and-
blood, living human being.” See Bruce A. Markell, The Sub Rose Subchapter: Individual Debtors in Chapter 11 After BAPCPA,
67 U. Ill. L. Rev. 67, 69 n.1 (2007).

2 United States Courts: Chapter 7 — Bankruptcy Basics, http://www.uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/
chapter-7-bankruptcy-basics (last visited July 5, 2015). “Commencement of a bankruptcy case creates an “estate.” The estate
technically becomes the temporary legal owner of all the debtor's property. It consists of all legal or equitable interests of the debtor
in property as of the commencement of the case, including property owned or held by another person if the debtor has an interest
in the property. Generally speaking, the debtor's creditors are paid from nonexempt property of the estate. The primary role of a
Chapter 7 trustee in an asset case is to liquidate the debtor's nonexempt assets in a manner that maximizes the return to the debtor's
unsecured creditors.”
3 As of April 1, 2013, the debt limits for Chapter 13 cases are $383,175 for unsecured debt and $1,149,525 for secured debt. 11 U.S.C.A.
§ 109(e) (2012). See Keith M. Lundin, Chapter 13 Bankruptcy § 44.1 (3d ed. 2000 & Supp. 2007). “The Chapter 13 debtor rather
than the trustee is empowered to use, sell or lease property of the estate even outside the ordinary course of business. This power
of a Chapter 13 debtor is plainly stated in § 1303: ‘Subject to any limitations on a trustee under this chapter, the debtor shall have,
exclusive of the trustee, the rights and powers of a trustee under sections 363(b), 363(d), 363(e), 363(f), and 363(l) of this title.’ In
stark contrast to a Chapter 7 case, a Chapter 13 trustee does not interrupt the debtor's possession or enjoyment of estate property.”
Keith M. Lundin, Chapter 13 Bankruptcy § 44.1 (3d ed. 2000 & Supp. 2007).
4 See Andrew G. Balbus, Does the Absolute Priority Rule Apply to Individuals in Chapter 11?, 20 J. Bankr. L. & Prac., Jan. 2011, at
79, 82. (“[M]any individuals have no alternative to filing in Chapter 11. Individuals with household incomes over the median income
for similar sized households in their state may not qualify for Chapter 7 under § 707(b). Individuals with large amounts of debt or
without regular income may not qualify for Chapter 13 under § 109(e).”).
5 See In re Lively, 717 F.3d. 406, 410 (5th Cir. 2013). See David S. Jennis & Kathleen L. DiSanto, Application of Absolute-Priority
Rule and the New-Value Exception in Individual Chapter 11s, ABI Journal, July-Aug. 2011, at 56. (“Ever since the Supreme Court
ruled in Toibb v. Radloff that chapter 11 could be used by individuals, courts have grappled with the application of the so-called
absolute-priority rule …”).
6 11 U.S.C.A. § 1129(b)(2)(B)(ii) (2012). See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202 (1988).
7 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified as amended
in scattered sections of 11 U.S.C.). See 11 U.S.C.A. §§ 1115(a)(1)(2), 1129(b)(2)(B)(ii) (2005). Unless otherwise noted, references
herein to sections and subsections are to sections and subsections of the Bankruptcy Code, 11 U.S.C.A. § 101 et seq.
8 See 11 U.S.C.A. §§ 1115(a), 1129(b)(2)(B)(ii) (2012).
9 See 11 U.S.C.A. §§ 541(a)(1), 1115(a) (2012). See also In re Lively, 717 F.3d at 409.
10 Stanley E. Goldich, Plain-Meaning Rules: Did BAPCPA Abolish the Absolute-Priority Rule?, ABI Journal, June 2012, at 34; 11
U.S.C.A. § 1129(b)(1)(2)(B)(ii) (2000).
11 See Goldich, supra note 10, at 34.
12 See Goldich, supra note 10, at 34; see also Balbus, supra note 4, at 80.
13 Michael P. Coury, et al., Sweat Equity Redux: Does the APR Survive for Individual Chapter 11 Cases?, Norton Bankr. L. Adviser,
Feb. 2011, at 1.2. Under the Bankruptcy Reform Act of 1978, Chapter 11 became the sole vehicle for businesses to file bankruptcy,
but also provided for the reorganization of individuals. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, tit. IV, § 401(a), 92
Stat. 2682 (1978)). Previously, Congress created Chapters 10 and 11 of the Bankruptcy Code through The Chandler Act of 1938. The
Chandler Act created Chapter 10 for publicly held companies and Chapter 11 for non-publicly held businesses. See Chandler Act of
1938, ch. 575, 52 Stat. 840 (repealed by Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, tit. IV, § 401(a), 92 Stat. 2682 (1978)).
14 In re Lively, 717 F.3d at 409.
15 Lundin, supra note 3, at § 363.12 (“For 25 years, we have worked with a bankruptcy law that was substantially consistent in
its implementation of familiar principles and often elegant in its technical construction. BAPCPA is fundamentally different in

both respects: the drum beats of its proponents are not carried into the score, and the nomenclature of this law is obscure at best,
incomprehensible often.”).
16 See, e.g., Zachary v. California Bank & Trust, 2016 WL 360519 at *7 (9th Cir. 2016); Ice House America, LLC v. Cardin, 751 F.3d
734, 736, 59 Bankr. Ct. Dec. (CRR) 138, 71 Collier Bankr. Cas. 2d (MB) 1121, Bankr. L. Rep. (CCH) P 82630 (6th Cir. 2014); In re
Lively, 717 F.3d 406, 408–09, 57 Bankr. Ct. Dec. (CRR) 278, 69 Collier Bankr. Cas. 2d (MB) 1423, Bankr. L. Rep. (CCH) P 82488
(5th Cir. 2013); In re Stephens, 704 F.3d 1279, 1287, 57 Bankr. Ct. Dec. (CRR) 125, 68 Collier Bankr. Cas. 2d (MB) 1760, Bankr.
L. Rep. (CCH) P 82366, 78 A.L.R. Fed. 2d 719 (10th Cir. 2013); In re Maharaj, 681 F.3d 558, 563, 56 Bankr. Ct. Dec. (CRR) 166,
67 Collier Bankr. Cas. 2d (MB) 1429, Bankr. L. Rep. (CCH) P 82289 (4th Cir. 2012).
17 See generally Balbus, supra note 4; Goldich, supra note 10; Coury, et al., supra note 13. See also Robert G. Harris, et al., BAPCPA's
Impact On Application Of The APR In Individual Chapter 11 Cases, Bus. L. News, Feb. 17, 2011, at 17 (“The ability of individuals
such as these to fund a plan often depends on their ability to retain these non-exempt assets ….”). See also Ice House America,
LLC v. Cardin, 751 F.3d 734, 739, 59 Bankr. Ct. Dec. (CRR) 138, 71 Collier Bankr. Cas. 2d (MB) 1121, Bankr. L. Rep. (CCH)
P 82630 (6th Cir. 2014).
18 Luis Salazar, Too Rich for Bankruptcy: Some Pitfalls of Chapter 11 Filings by Individual, 9 J. Bankr. L. & Prac. 527 (2000); “Chapter
11 provides an imperfect fit for the individual debtor ….” Salazar, Too Rich for Bankruptcy: Some Pitfalls of Chapter 11 Filings by
Individual, 9 J. Bankr. L. & Prac. at 544. American bankruptcy institute, Commission to Study the Reform of Chapter 11, 2012–2014
Final Report and Recommendations 318 (2014) [hereinafter Commission Report] (“The “fit” of chapter 11 and all its complexity
has also presented significant hurdles to individual debtors seeking reorganization.”); Markell, supra note 1, at 69. (“Individuals and
chapter 11 have a rocky history.”); Christopher M. Broussard, Protecting Bankruptcy in an Economic Crisis: Why an Individual
Debtor's Expenses Should Be Use to Prevent Abuse in Chapter 11, Ann. Surv. Bankr. L. 537, __ (2010) (“After BAPCPA, Chapter
11 has become a dysfunctional faceoff between individual debtors and their creditors.”); see generally Sally S. Neely, How BAPCPA
Changes Chapter 11 for Individuals—or—No, This is Not Your Mother's Chapter 11! (unpublished materials prepared for New York
University's Workshop on Bankruptcy and Business Reorganizations on Sept. 14–16, 2005) (on file with author).
19 Ice House, 751 F.3d at 740; see generally Debra Grassgreen, Individual Chapter 11 Cases After BAPCPA: What Happened to the
“Fresh Start?”, Ann. Surv. Bankr. L. 309 (2006). “Regrettably, these changes created more confusion than they cleared up and stripped
Chapter 11 individual debtors of many of benefits of the coveted “fresh start.” Debra Grassgreen, Individual Chapter 11 Cases After
BAPCPA: What Happened to the “Fresh Start?”, Ann. Surv. Bankr. L. at 311.
20 Goldich, supra note 10, at 35. (“[T]he continued existence or nonexistence of the absolute priority rule may dictate whether plans
can be confirmed in many individual chapter 11 cases.”). See also Ice House, 751 F.3d at 740.
21 In re Friedman, 466 B.R. 471, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232
(B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 at * 4 (9th Cir. 2016)); In re Shat, 424
B.R. 854, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (abrogated by, Zachary v.
California Bank & Trust, 2016 WL 360519 (9th Cir. 2016)).
22 In re Friedman, 466 B.R. at 483; In re Shat, 424 B.R. at 862.
23 Zachary v. California Bank & Trust, 2016 WL 360519 at *7 (9th Cir. 2016).
24 Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365, 366, 127 S. Ct. 1105, 166 L. Ed. 2d 956, 47 Bankr. Ct. Dec. (CRR) 221,
57 Collier Bankr. Cas. 2d (MB) 1, Bankr. L. Rep. (CCH) P 80850 (2007) (citing Grogan v. Garner, 498 U.S. 279, 287, 111 S. Ct.
654, 655, 112 L. Ed. 2d 755, 21 Bankr. Ct. Dec. (CRR) 342, 24 Collier Bankr. Cas. 2d (MB) 1, Bankr. L. Rep. (CCH) P 73746A, 70
A.F.T.R.2d 92-5639 (1991); Milavetz, Gallop & Milavetz, P.A. v. U.S., 559 U.S. 229, 231–232, 130 S. Ct. 1324, 1329, 176 L. Ed.
2d 79, 52 Bankr. Ct. Dec. (CRR) 232, 63 Collier Bankr. Cas. 2d (MB) 910, Bankr. L. Rep. (CCH) P 81703 (2010).
25 11 U.S.C.A. § 1129(a)(15) (2012); In re Shat, 424 B.R. 854 at 862.
26 11 U.S.C.A. § 1129(a)(15)(B) (2012). Section 1129(a)(15)(B) refers to 11 U.S.C.A. § 1325(b)(2) (2012), which defines “disposable
income” as current monthly income received by the debtor (excluding specific support payments), less amounts reasonably necessary

to be expended: (i) for the maintenance or support of the debtor or dependent of the debtor; (ii) for a domestic support obligation
payable post-petition; (iii) for charitable contributions that do not exceed 15% of the debtor's annual gross income; and (iv) in the
case of a business debtor, for the payment of amounts necessary for the continuation, preservation, and operation of its business.)
See Lundin, supra note 3, at §§ 466.1, 467.1 for a thorough discussion of the problems associated with the calculation of projected
disposable income under BAPCPA. See also Lundin, supra note 3, at § 164.1 for a discussion of various methods of calculation of
“projected disposable income” under section 1325(b)(2).
27 See In re Shat, 424 B.R. at 857.
28 See Harris, et al., supra note 17, at 17 (“[A] successful exit from Chapter 11 almost always requires confirmation of a plan.”). See
also infra Parts V and VI.
29 See In re Friedman, 466 B.R. 471, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232
(B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 at *4 (9th Cir. 2016)); see also In re Shat,
424 B.R. 854, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010); Grassgreen, supra note
19 (“As a result of the changes, Chapter 11 individual debtors no longer receive a “fresh start” and receive even fewer protections
and benefits than are afforded Chapter 13 debtors.”).
30 This section is not an exhaustive history of bankruptcy legislation. It discusses specific portions of legislative history, which focused
on amending the Code with the goal of requiring debtors to repay their debts when possible.
31 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Pub. L. No. 109-8, 119 Stat. 23 (codified as amended
in scattered sections of 11 U.S.C.).
32 H.R. REP. NO. 109-31, pt. 1, at 2 to 3, 10 to 18, (2005); Milavetz, Gallop & Milavetz, P.A. v. U.S., 559 U.S. 229, 231–232, 130
S. Ct. 1324, 1329, 176 L. Ed. 2d 79, 52 Bankr. Ct. Dec. (CRR) 232, 63 Collier Bankr. Cas. 2d (MB) 910, Bankr. L. Rep. (CCH)
P 81703 (2010).
33 See generally Lundin, supra note 3 at § 363.2 (describing the “Make ‘em Pay Principle” in BAPCPA).
34 See, e.g., REPORT OF THE COMM'N ON THE BANKR. LAWS OF THE U.S.—JULY 1973, H.R. DOC. NO. 93-137, pt. I, at
159 (1973).
35 Pub. L. No. 95-598, § 707, 1978 U.S.C.C.A.N. (92 Stat.) 2549, 2606.
36 Hearings on Personal Bankruptcy Before the Subcomm. on Monopolies and Commercial Law of the H. Comm. on the Judiciary,
97th Cong. (1982).
37 See id. at 430–432.
38 Lundin, supra note 3, at § 11.1 (quoting legislative history from 1994 pertaining to debt limits in Chapter 13, “We encourage greater
reliance on Chapter 13 of the Bankruptcy Code—an alternative to liquidation—by making a broader range of debtors eligible to file
under that chapter and contribute income under a repayment plan.”).
39 H.R. 2500, 105th Cong. (1997).
40 Susan Jensen, A Legislative History of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 Am. Bankr.
L.J. 485, 496 (2005).
41 Bankruptcy Reform Act of 1998; Responsible Borrower Protection Act; and Consumer Lenders and Borrowers Bankruptcy
Accountability Act of 1998 — Parts I-IV: Hearings on H.R. 3150, H.R. 2500, and H.R. 3146 Before the Subcommittee on Commercial
and Administrative Law of the H. Comm. on the Judiciary, 105th Cong. (1998).
42 Jensen, supra note 40, at 502.

43 144 Cong. Rec. H4440-42, at H4442 (daily ed. June 10, 1998).
44 Executive Office of the President — Office of Management and Budget, Statement of Administration Policy — H.R. 3150 —
Bankruptcy Reform Act of 1998, at 1 (June 10, 1998), available at http:// clinton2.nara.gov/OMB/legislative/sap/105-2/HR3150-
h.html.
45 H.R. 833, 106th Cong. (1999); Jensen, supra note 40, at 519.
47 145 Cong. Rec. H2771 (daily ed. May 5, 1999); Executive Office of the President — Office of Management and Budget, Statement
of Administration Policy — H.R. 833 — Bankruptcy Reform Act of 1999, at 1 (May 5, 1999), available at http:// clinton2.nara.gov/
OMB/legislative/sap/HR833-h.html; 145 Cong. Rec. H2771 (daily ed. May 5, 1999).
48 S. 256, 109th Cong. (2005).
50 151 Cong. Rec. H2074-76, at H2076 (daily ed. Apr. 14, 2005).
51 Pub. L. No. 109-8, 119 Stat. 23 (2005).
52 Press Release, White House Press Office, President Signs Bankruptcy Abuse Prevention, Consumer Protection Act (Apr. 20, 2005),
available at http://www.whitehouse.gov/news/releases/2005/04/20050420-5.html.
53 See generally Markell supra note 1 (“BAPCPA's provisions have created and will continue to create unexpected anomalies in
individual chapter 11 cases, due in large part to the manner in which BAPCPA provisions affecting such individuals are scattered
throughout the Code,” and asserting that individual chapter 11 debtors should have a separate subchapter to Chapter 11 in the Code);
Id. at 67. Lundin, supra note 3, at § 360.1 (“For more than a quarter century, bankruptcy petitioners have been spoiled by a Bankruptcy
Code that makes sense …. BAPCPA is a mess—almost beyond the worst nightmares of those who followed its progress from the
outside.”).
54 In re Friedman, 466 B.R. 471, 484, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232
(B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 at * 4 (9th Cir. 2016)); In re Shat, 424
B.R. 854, 862, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (abrogated by, Zachary
v. California Bank & Trust, 2016 WL 360519 (9th Cir. 2016)).
See generally Balbus, supra note 4 (discussing the APR's application to individual Chapter 11 debtors, the author argues that
“Congress intended to place an individual debtor in Chapter 11 in a similar position to an individual debtor in Chapter 13 …”); Id.
at 82.
55 See Balbus, supra note 4, at 94–96; Harris, et al., supra note 17, at 20; see generally Neely, supra note 18.
56 In re Lively, 717 F.3d 406, 409, 57 Bankr. Ct. Dec. (CRR) 278, 69 Collier Bankr. Cas. 2d (MB) 1423, Bankr. L. Rep. (CCH) P
82488 (5th Cir. 2013).
57 11 U.S.C.A. § 1325(b) (2012). See id.; see also supra note 26 for a discussion of disposable income.
58 In re Lively, 717 F.3d at 409.
59 11 U.S.C.A. § 1115 (2012).
60 11 U.S.C.A. §§ 1115, 1306 (2012).

61 11 U.S.C.A. §§ 1129(a)(15)(B); 1325(b)(2) (2012) (this calculation is used in Chapter 13 cases, except for higher income debtors,
in which case a means test analysis is applied). See 11 U.S.C.A. §§ 707(b)(2), 1325(b)(3) (2012). See also In re Shat, 424 B.R. 854,
862 (Bankr. D. Nev. 2010).
62 11 U.S.C.A. §§ 1123(a)(8), 1322(a)(1) (2012). 11 U.S.C.A. § 1123 (a)(8) requires individual Chapter 11 debtors to “provide for
the payment to creditors under the plan of all or such portion of earnings from personal services performed by the debtor after the
commencement of the case or other future income of the debtor as is necessary for the execution of the plan.” In re Shat, 424 B.R.
854 at 862.
63 11 U.S.C.A. §§ 1127(e), 1329(a) (2012). 11 U.S.C.A. § 1329(a) allows a Chapter 13 debtor to amend a plan “At any time after
confirmation of the plan but before completion of payments under such plan ….” In re Shat, 424 B.R. 854 at 862.
64 11 U.S.C.A. § 1141(d) (2000), amended by BAPCPA, Pub. L. No. 109-8, § 321(d), 119 Stat. 23, 95 to 96 (2005). 11 U.S.C.A. §§
1141(d)(5)(A), 1328(a) (2012). In re Friedman, 466 B.R. 471, 483, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB)
752, Bankr. L. Rep. (CCH) P 82232 (B.A.P. 9th Cir. 2012).
65 11 U.S.C.A. §§ 1141(d)(5)(B), 1328(b) (2012); In re Friedman, 466 B.R. 471 at 483.
66 See Harris, supra note 17, at 17. See also Balbus, supra note 4, at 82; Lundin, supra note 3, at § 4.5 for a discussion of the benefits
of Chapter 13 versus Chapter 11. But see Lundin, supra note 3, at § 536.1 for a discussion of incentives for a Chapter 13 debtor to
convert their case to one under Chapter 11.
67 11 U.S.C.A. § 1129(a) (2012).
68 11 U.S.C.A. § 1129(a) (2012). See generally Judith K. Fitzgerald, et al., consensual plan confirmation requirements) (Practice Guide
Bankruptcy, Nat. Ed. 2014) [hereinafter Plan Requirements] (providing a comprehensive overview of all Chapter 11 nonconsensual
plan confirmation requirements).
69 11 U.S.C.A. § 1129(a) (2012). See also Plan Requirements, supra note 68.
70 11 U.S.C.A. § 1129(b)(1) (2012). See also Goldich, supra note 10, at 35.
71 11 U.S.C.A. § 1129(b)(2)(B) (2012). See also Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202, 108 S. Ct. 963, 99 L. Ed. 2d
169, 17 Bankr. Ct. Dec. (CRR) 201, 18 Collier Bankr. Cas. 2d (MB) 262, Bankr. L. Rep. (CCH) P 72186 (1988).
72 11 U.S.C.A. § 1129(b)(2)(B) (2012).
73 11 U.S.C.A. § 1129(b)(2)(B)(ii) (2012). See also In re Lucarelli, 517 B.R. 42, 47–48, 72 Collier Bankr. Cas. 2d (MB) 336 (Bankr.
D. Conn. 2014).
74 See, e.g., In re Karlovich, 456 B.R. 677, 681 (Bankr. S.D. Cal. 2010).
75 In re Karlovich, 456 B.R.at 681; see also Grassgreen, supra note 19, at 311. (“The most drastic (and, some argue, unconstitutional)
change is that an individual's earnings from personal services after the commencement of the bankruptcy case are not part of the
estate.”). Referring to the amendment to Section 1115, she states, “[T]his portion of the new law will encourage debtors to select
Chapter 7 liquidations rather than Chapter 11 repayment plans -a result directly at odds with what has been a stated purpose of the
BAPCPA amendments.” Grassgreen, supra note 19, at 312.
76 11 U.S.C.A. § 1115 (2012).
77 In re Lucarelli, 517 B.R. at 47–48.
78 See In re Lucarelli, 517 B.R. at 47–48; see also Goldich, supra note 10, at 3.

79 See Zachary v. California Bank & Trust, 2016 WL 360519 at *7 (9th Cir. 2016); Ice House America, LLC v. Cardin, 751 F.3d 734,
736, 59 Bankr. Ct. Dec. (CRR) 138, 71 Collier Bankr. Cas. 2d (MB) 1121, Bankr. L. Rep. (CCH) P 82630 (6th Cir. 2014); In re
Lively, 717 F.3d 406, 408–09, 57 Bankr. Ct. Dec. (CRR) 278, 69 Collier Bankr. Cas. 2d (MB) 1423, Bankr. L. Rep. (CCH) P 82488
(5th Cir. 2013); In re Stephens, 704 F.3d 1279, 1287, 57 Bankr. Ct. Dec. (CRR) 125, 68 Collier Bankr. Cas. 2d (MB) 1760, Bankr. L.
Rep. (CCH) P 82366, 78 A.L.R. Fed. 2d 719 (10th Cir. 2013); In re Maharaj, 681 F.3d 558, 563, 56 Bankr. Ct. Dec. (CRR) 166, 67
Collier Bankr. Cas. 2d (MB) 1429, Bankr. L. Rep. (CCH) P 82289 (4th Cir. 2012); In re Friedman, 466 B.R. 471, 482, 56 Bankr. Ct.
Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232 (B.A.P. 9th Cir. 2012) (overruled by, Zachary
v. California Bank & Trust, 2016 WL 360519 (9th Cir. 2016)); In re Shat, 424 B.R. 854, 868, 63 Collier Bankr. Cas. 2d (MB) 748,
Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (abrogated by, Zachary v. California Bank & Trust, 2016 WL 360519 (9th Cir.
2016)); In re Tegeder, 369 B.R. 477, 480, 48 Bankr. Ct. Dec. (CRR) 88 (Bankr. D. Neb. 2007). See also Goldich, supra note 10, at 3.
80 Ralph Brubaker, Individual Chapter 11 Debtors, BAPCPA, and the APR, 30 No. 4 Bankruptcy Law Letter 1, April 2010, at __ (“Given
the bedrock importance of the APR to Chapter 11's entire scheme of distributional checks and balances, one would think that Congress
would take great pains to leave no doubt as to whether the APR is or is not applicable in any given case. Careful draftsmanship,
though, is not a hallmark of the 2005 BAPCPA amendments (to put it mildly), and the available legislative history is, in a (wildly
understated) word, unhelpful.”). Markell, supra note 1, at 88 (“How that rule applies to individuals, however, is a puzzle.”).
81 In re Maharaj, 681 F.3d at 56–68.
82 In re Maharaj, 681 F.3d at 568, 572. See also In re Lively, 717 F.3d 406, 410, 57 Bankr. Ct. Dec. (CRR) 278, 69 Collier Bankr. Cas.
2d (MB) 1423, Bankr. L. Rep. (CCH) P 82488 (5th Cir. 2013); In re Lucarelli, 517 B.R. 42, 51–52, 72 Collier Bankr. Cas. 2d (MB)
336 (Bankr. D. Conn. 2014). But see, Goldich, supra note 10, at 83 (“A close analysis of the published cases, however, indicates that
determinations that the statutes are ambiguous and/or that § 1115 only includes post-petition property appear to be the product of an
incorrect reading of the actual language of the statutes, speculation about congressional intent that is not in the legislative history and/
or questionable arguments that the abrogation of the APR would lead to absurd results or render other Code sections superfluous.”).
83 In re Lucarelli, 517 B.R. at 49–52; see also Zachary v. California Bank & Trust, 2016 WL 360519 at *5 (9th Cir. 2016).
84 In re Lucarelli, 517 B.R. at 53.
85 In re Lucarelli, 517 B.R. at 51–52.
86 In re Lucarelli, 517 B.R. at 52.
87 See Goldich, supra note 10, at 3 (“The interpretation of §§ 1129(b)(2)(B)(ii) and 1115 has been a roller coaster ride.”). In re Gbadebo,
431 B.R. 222, 229, 63 Collier Bankr. Cas. 2d (MB) 1293, Bankr. L. Rep. (CCH) P 81753 (Bankr. N.D. Cal. 2010) (“No one who
reads BAPCPA as a whole can reasonably conclude that it was designed to enhance the individual debtor's fresh start.”).
88 Ice House America, LLC v. Cardin, 751 F.3d 734, 739–40, 59 Bankr. Ct. Dec. (CRR) 138, 71 Collier Bankr. Cas. 2d (MB) 1121,
Bankr. L. Rep. (CCH) P 82630 (6th Cir. 2014).
89 In re Cardin, 2013 WL 1092118 (Bankr. E.D. Tenn. 2013).
90 Ice House, 751 F.3d at 736–37.
91 Ice House, 751 F.3d at 737.
93 Ice House, 751 F.3d at 736–37.

96 Ice House, 751 F.3d at 738–40.
97 Ice House, 751 F.3d at 737 (quoting In re Lively, 717 F.3d. 406, 410 (5th Cir. 2013).
100 Ice House, 751 F.3d at 739.
101 Ice House, 751 F.3d at 740.
102 Ice House, 751 F.3d at 740.
103 Zachary v. California Bank & Trust, 2016 WL 360519 at *4 (9th Cir. 2016); In re Friedman, 466 B.R. 471, 56 Bankr. Ct. Dec. (CRR)
57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232 (B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California
Bank & Trust, 2016 WL 360519 (9th Cir. 2016)).
105 Zachary, 2016 WL 360519 at *1.
106 Zachary, 2016 WL 360519 at *1.
107 Zachary, 2016 WL 360519 at *4–5.
108 Zachary, 2016 WL 360519 at *5.
109 Zachary, 2016 WL 360519 at *5.
110 Zachary, 2016 WL 360519 at *6.
111 Zachary, 2016 WL 360519 at *6.
112 Zachary, 2016 WL 360519 at *6.
113 Zachary, 2016 WL 360519 at *6.
114 In re Lively, 717 F.3d 406, 57 Bankr. Ct. Dec. (CRR) 278, 69 Collier Bankr. Cas. 2d (MB) 1423, Bankr. L. Rep. (CCH) P 82488
(5th Cir. 2013).
115 See Gregory R. Schaff, Ghosts of Individual Ch. 11 Debtors Yet to Come: Part II: Confirming an Individual Debtor's Chapter 11
Plan under BAPCPA, ABI Journal, Feb. 2007, at 71 (“These changes leave an individual that exceeds the chapter 13 debtor criteria
and fails the chapter 7 means test without a viable reorganization or liquidation option under the Code.”).
116 See In re Friedman, 466 B.R. 471, 482, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH)
P 82232 (B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 (9th Cir. 2016)); see also In
re Shat, 424 B.R. 854, 868, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (abrogated
by, Zachary v. California Bank & Trust, 2016 WL 360519 (9th Cir. 2016)).
117 In re Friedman, 466 B.R. at 482; see also In re Tegeder, 369 B.R. 477, 480, 48 Bankr. Ct. Dec. (CRR) 88 (Bankr. D. Neb. 2007).
118 See Balbus, supra note 4, at 82; see also Harris, et al., supra note 17, at 17.
119 In re O'Neal, 490 B.R. 837, 850 (Bankr. W.D. Ark. 2013).
120 In re O'Neal, 490 B.R. at 850–51.

121 Schaff, supra note 115, at 71. (“Unlike the muse for this article, Charles Dickens' A Christmas Carol, there is no happy ending at
the present time for individual chapter 11 debtors. While some debtors may have access to sufficient exempt assets to live on while
in bankruptcy and to fund a chapter 11, most individual chapter 11 debtors do not have such convenient resources. BAPCPA has
made the already-difficult lives of individual chapter 11 debtors and their lawyers much more challenging, without offering many
solutions to these difficulties. However, unless the new provisions concerning BAPCPA are either revised by Congress or ruled
unconstitutional by the Supreme Court (topics far outside the scope of this article), these ‘shadows’ will remain unchanged. Therefore,
like Tiny Tim, we will have to press on and make the best of a bad situation.”)
123 In re Shat, 424 B.R. 854, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr. L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (abrogated by,
Zachary v. California Bank & Trust, 2016 WL 360519 (9th Cir. 2016))).
124 In re Shat, 424 B.R. at 856.
125 In re Shat, 424 B.R. at 865, 868. See supra Part III.
126 In re Shat, 424 B.R. at 856.
127 In re Shat, 424 B.R. at 856.
128 Voluntary Petition, Schedules A, D, I, J, at 15, 20–22, 28–29, In re Shat, 424 B.R. 854, 63 Collier Bankr. Cas. 2d (MB) 748, Bankr.
L. Rep. (CCH) P 81701 (Bankr. D. Nev. 2010) (on file with author).
129 In re Shat, 424 B.R. at 856.
130 In re Shat, 424 B.R. at 856–57.
131 In re Shat, 424 B.R. at 857.
132 In re Shat, 424 B.R. at 857.
133 In re Shat, 424 B.R. at 857.
134 In re Shat, 424 B.R. at 859.
135 In re Shat, 424 B.R. at 862.
136 In re Shat, 424 B.R. at 862.
137 In re Shat, 424 B.R. at 863–64.
138 In re Shat, 424 B.R. at 864.
139 In re Shat, 424 B.R. at 864.
140 In re Shat, 424 B.R. at 864, 868; see also Markell, supra note 1, at 90.
141 In re Shat, 424 B.R. at 865 (citing Florida Dept. of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S. 33, 128 S. Ct. 2326, 2336, 171
L. Ed. 2d 203, 50 Bankr. Ct. Dec. (CRR) 34, 59 Collier Bankr. Cas. 2d (MB) 1316, Bankr. L. Rep. (CCH) P 81257 (2008).
142 In re Shat, 424 B.R. at 865. The court went on to discuss other case law supporting its position. Importantly, it quoted In re Roedemeier,
stating, “[t]he broader view of the exception, on the other hand, helps to explain why a number of changes, including the exception,
were made to Chapter 11, namely so that it could function for individual debtors much like Chapter 13 does.” In re Roedemeier, 374
B.R. 264, 271, 48 Bankr. Ct. Dec. (CRR) 196 (Bankr. D. Kan. 2007).

143 In re Shat 424 B.R. at 867.
144 In re Shat 424 B.R. at 867. (citing In re Pacific Lumber Co., 584 F.3d 229, 244, 52 Bankr. Ct. Dec. (CRR) 46, Bankr. L. Rep. (CCH)
P 81642 (5th Cir. 2009).
145 In re Friedman, 466 B.R. 471, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P 82232
(B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 at *4 (9th Cir. 2016)).
146 In re Friedman, 466 B.R. at 472–73.
147 In re Friedman, 466 B.R. at 473.
166 In re Friedman, 466 B.R. at 477..

174 In re Friedman, 466 B.R. at 479. Goldich, supra note 10, at 35. (“[T]he Friedman holding did not eliminate the ‘fair and equitable’
standard in § 1129(b)(1) for which the absolute priority rule was a minimum requirement. A number of other creditor protections
remain, including requirements that the plan be proposed in good faith; and the ‘best interests’ liquidation test and new creditor
protections relating to individual chapter 11 cases were added by BAPCPA, including a requirement to distribute property that is at
least in value to the debtor's projected disposable income for five years if an unsecured creditor objects to the plan.”).
175 Harris, et al., supra note 17, at 20. (“Such an analysis [the nearly identical language sections of 1115 and 1306] should be critical
to a discussion of what property of the estate is excepted from the Absolute Priority Rule.”). “Congress has an obligation to revisit
the APR as it applies to individuals and express its intent in an unambiguous amendment supported by clear legislative history. Until
it does so, reviewing courts should consider which view most fairly treats the competing interests of debtors and creditor without
unduly burdening the limited prospects for reorganization of individual Chapter 11 debtors, and they should not ignore the nearly
identical wording of sections 1306 and 1115.” Harris, et al., supra note 17, at 20. See Zachary v. California Bank & Trust, 2016
WL 360519 at *2 (9th Cir. 2016).
176 See Harris, et al., supra note 17, at 17; see also Ice House America, LLC v. Cardin, 751 F.3d 734, 736, 59 Bankr. Ct. Dec. (CRR)
138, 71 Collier Bankr. Cas. 2d (MB) 1121, Bankr. L. Rep. (CCH) P 82630 (6th Cir. 2014).
177 Broussard, supra note 18, at __. (“As the ripples of financial crisis flow through this country, many Americans … found themselves
unemployed.”).
178 Markell, supra note 1, at 67. (“Reorganization under the Bankruptcy Code serves the public interest by providing worthy debtors a
mechanism to gain relief from crushing debt while maintaining some measure of fidelity to creditors.”). See In re Interstate Bakeries
Corp., 751 F.3d 955, 961, 59 Bankr. Ct. Dec. (CRR) 172, 71 Collier Bankr. Cas. 2d (MB) 1878 (8th Cir. 2014). (“The goal of Chapter
11 of the Bankruptcy Code is ‘the ultimate rehabilitation of the debtor’.”) (citing Nicholas v. U.S., 1966-2 C.B. 511, 384 U.S. 678,
687, 86 S. Ct. 1674, 16 L. Ed. 2d 853, 66-1 U.S. Tax Cas. (CCH) P 9465, 17 A.F.T.R.2d 1194 (1966). See Anne Lawton, Chapter
11 Triage: Diagnosing a Debtor's Prospects for Success, 54 Ariz. L. Rev. 985, 988 (2012) (“A central purpose of Chapter 11 is the
rehabilitation, through the Code's plan process, of financially distressed debtors.”).
179 11 U.S.C.A. § 1129(a)(15) (2012). See In re Friedman, 466 B.R. at 482; In re O'Neal, 490 B.R. 837, 850-51 (Bankr. W.D. Ark. 2013).
180 Milavetz, Gallop & Milavetz, P.A. v. U.S., 559 U.S. 229, 232, 130 S. Ct. 1324, 176 L. Ed. 2d 79, 52 Bankr. Ct. Dec. (CRR) 232, 63
Collier Bankr. Cas. 2d (MB) 910, Bankr. L. Rep. (CCH) P 81703 (2010). See supra Part II.
181 Ransom v. FIA Card Services, N.A., 131 S. Ct. 716 at 721 (citing H. R. Rep. No. 109-31, pt. 1, p. 2 (2005)).
182 11 U.S.C.A. § 1129(a)(15) (2005).
183 11 U.S.C.A. § 1325(b)(2) (2012). See supra Part III. See also supra, note 26 for a discussion of disposable income. In Chapter 13
cases, the disposable income provision of section 1325(b) is “applicable only upon objection to confirmation by the Chapter 13 trustee
or by ‘the holder of an allowed unsecured claim.’” Lundin, supra note 3, at § 163.1.
184 11 U.S.C.A. § 1129(a)(15) (2012).
185 In re Friedman, 466 B.R. 471, 483, 56 Bankr. Ct. Dec. (CRR) 57, 67 Collier Bankr. Cas. 2d (MB) 752, Bankr. L. Rep. (CCH) P
82232 (B.A.P. 9th Cir. 2012) (overruled by, Zachary v. California Bank & Trust, 2016 WL 360519 (9th Ci.
186 11 U.S.C.A. § 1129(a)(15) (2012).

25 No 1 J Bankr L And Prac NL Art 2

25 No 1 J Bankr L And Prac NL Art 2

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