United States: The Unappealing Prospects For Debtors Whose Bankruptcy Plans Are Denied Confirmation

Last Updated: May 15 2015
Article by Jeffery D. Hermann

The United States Supreme Court decided a bankruptcy appeal on May 4th that holds that, even though creditors and others aggrieved by the confirmation of a bankruptcy plan can appeal the order confirming the plan as a matter of right, a debtor has no such right to appeal an order denying confirmation.  The basic logic employed by the Court is that an order confirming a plan moves the case forward and alters the rights of the parties, whereas an order denying confirmation does neither because the debtor can merely propose another, different plan.

The case is Bullard v. Blue Hills Bank,[1] an appeal from the Bankruptcy Court for the District of Massachusetts that made its way through the Bankruptcy Appellate Panel for the First Circuit and the First Circuit Court of Appeals.  The unanimous decision was authored by Chief Justice John Roberts.

Facts of the Bullard Case.

Louis Bullard filed his chapter 13 petition almost five years ago in December of 2010.  Bullard's chief asset was a multifamily house located in Randolph, Massachusetts, encumbered by a mortgage in the original principal amount of $387,000, reduced as of the date of the bankruptcy filing to about $346,000, in favor of Hyde Park Bank (now known as Blue Hills Bank).  The mortgage called for payments through June 1, 2035, for a remaining term of 25 years as of the petition date.  Bullard provided an appraisal of the house in the amount of $245,000 and Hyde Park Bank provided an appraisal in the amount of $285,000.  Over the course of more than a year, Bullard amended his chapter 13 plan three times.  The Third Amended Plan provided that the claim of Hyde Park Bank would be bifurcated into a secured claim in the amount of $245,000 and an unsecured claim in the amount of about $101,000.[2]  The Plan provided that the unsecured claim would be paid slightly over 5% during the five year term of the Plan and that the secured claim would receive the monthly installment payments called for in the promissory note that is secured by the mortgage until the principal amount is paid in full.  Because those monthly installment payments were in the amounts necessary to amortize a $387,000 principal balance over 30 years, making the same payments on the secured claim balance of only $245,000 would result in full repayment of the secured claim well before June 1, 2035, but well beyond the five year term of the chapter 13 Plan.

Ruling of the Bankruptcy Court.

The bankruptcy court denied confirmation of the Plan.[3]  The bankruptcy court reasoned that chapter 13 provides for two possible treatments of secured claims.  First, the debtor may pay the secured and unsecured claims through the chapter 13 plan, with a maximum term of five years, with the unsecured claim receiving a typically modest distribution and the secured claim receiving full payment within the five year term.  In this case, the requirement that Bullard pay $245,000 plus interest over five years effectively eliminated this treatment as an economic matter (although some such plans merely state that the loan will be refinanced or the property sold at the end of the term of the plan – a provision which introduces so much uncertainty that many courts would have trouble finding that such a plan is feasible).

The second option is the treatment most often used for mortgages secured by the principal residence of the debtor – cure the pre-petition arrearage by payment in full over the term of the plan and continue making the payments called for by the mortgage, even long after the term of the plan, which mortgage is otherwise unmodified by the plan.

In the view of the Bankruptcy Court, the two choices available to Bullard were to modify the mortgage but complete all payments within no more than five years, or continue making payments over the remaining term of the mortgage (23 years as of the date of the decision in the Bullard case) but pay both the pre-petition arrearage and the principal balance of the mortgage in full.

Bullard's chapter 13 Plan took the benefits of both approaches and rejected the burdens of both approaches.  His plan modified the mortgage by paying only 5% on the $101,000 unsecured portion of the claim, yet provided that the secured claim could be repaid over a period of years far exceeding the five year limitation of a chapter 13 plan.

After a lengthy and thorough analysis of this "hybrid plan," including discussion of other courts that had allowed such hybrid plans, the Bankruptcy Court concluded that "a plan that proposes to both modify the rights of the secured claim holder and thereafter maintain payments on the secured portion of the claim for a period that exceeds the term of the plan cannot be confirmed over the creditor's objection."[4]

The Debtor's Options After Denial of Confirmation of His Plan. 

After the denial of confirmation of his Plan, in addition to the ever-present option of settling with Hyde Park Bank, Bullard had two basic choices:  (1) file a Fourth Amended Plan either modifying the mortgage but completing all payments within five years, or alternatively a plan paying the mortgage in full over the remaining 23 year term;  or (2) appeal.  Apparently, Bullard was not satisfied with the economic consequences of either possibility for a further amended plan, and he chose to appeal.

Appeal to the BAP.

The first level of appeal was to the Bankruptcy Appellate Panel (BAP) of the First Circuit.[5]  In 2012, the BAP found that Bullard had no ability to appeal the order denying confirmation of his Plan as a matter of right because the order was not "final" given Bullard's option of filing another plan, but the BAP nonetheless decided to hear the appeal as an interlocutory appeal because it presented a controlling question of law as to which there is a substantial difference of opinion.[6]

On the merits, the BAP found that Massachusetts bankruptcy courts are split on the confirmability of hybrid plans but agreed with the result reached by the Bankruptcy Court:  "Bullard's hybrid plan cannot be confirmed.  The plan cannot employ both §1322(b)(2) and (5) to reduce Hyde Park's secured claim and, at the same time, pay that secured claim over a period beyond the plan's term."[7]

Appeal to the First Circuit.

By 2014, Bullard's case was before the First Circuit Court of Appeals.[8]  The First Circuit started with the issue of whether an order denying confirmation of a plan is a final order that the debtor may appeal as a matter of right, and noted that the circuits were split on this issue.[9]   Ultimately, the First Circuit opted for a clean and easily applied standard of holding that an order denying confirmation is not a final order and therefore not appealable as a matter of right as long as the debtor was free to file an amended plan in the bankruptcy case.  Bullard argued that his option of filing a further amended plan was illusory because the only feasible plan was the plan he filed.  To this, the First Circuit replied that "Bullard's options may be unappealing at this stage of the game, but he ignores the fact that Congress laid out other options for him – options that he did not pursue"[10] – such as seeking discretionary review of the order denying confirmation as an interlocutory, non-final order.

The First Circuit found that it lacked jurisdiction to hear Bullard's appeal and therefore did not address the merits of whether his hybrid chapter 13 plan could be confirmed.

Decision of the U.S. Supreme Court.

Four and a half years after filing his chapter 13 case, and almost three years after the bankruptcy court denied confirmation of Bullard's Third Amended Plan, the United States Supreme Court unanimously confirmed the ruling of the First Circuit.  Chief Justice Roberts wrote for the Court.

The Court did not debate the merits of the confirmability of a hybrid chapter 13 plan.  The opinion deals exclusively with the issue of whether Bullard could appeal the order denying confirmation of his plan as a matter of right.

Chief Justice Roberts laid out the position of Hyde Park Bank and Bullard.  Bullard pointed out that the appeal statute applicable to bankruptcy cases authorizes an appeal from "final judgments, order, and decrees . . . in cases and proceedings."  28 U.S.C. §158(a).  Bullard argued that if a debtor proposes more than one plan, each plan is a separate "proceeding" from which separate appeals may be taken if the bankruptcy court denies confirmation.  Hyde Park Bank's position was that an order denying confirmation is not final as long as the debtor has an opportunity to file another plan.

The Court quickly agreed with the position of Hyde Park Bank and the BAP and First Circuit.

We agree with the Bank:  The relevant proceeding is the process of attempting to arrive at an approved plan that would allow the bankruptcy to move forward.  This is so, first and foremost, because only plan confirmation – or case dismissal – alters the status quo and fixes the rights and obligations of the parties.[11]

The Court noted that dismissal of the case after denial of plan confirmation similarly results in significant consequences and effects upon the rights of the debtor and remedies of the creditors.  However, merely denying confirmation with leave to amend has no such significant consequences, in the view of the Court.  Such an order merely disposes of that particular plan but the prospects of the debtor to propose an alternative plan and complete the chapter 13 process remains intact.  Per Chief Justice Roberts:  "But that alone does not make the denial final any more than, say, a car buyer's declining to pay the sticker price is viewed as a "final" purchasing decision by either the buyer or seller."[12]

Justice Roberts addressed the multi-appeal regimen that Bullard advocated for, noting that if the bankruptcy court denied several plans, then each such denial could result in another round of appeals.  "As Bullard's case shows, each climb up the appellate ladder and slide down the chute can take more than a year.  Avoiding such delays and inefficiencies is precisely the reason for a rule of finality."[13]  Given that Bullard's appellate path had taken almost three years, the statement of Chief Justice Roberts as to timing appears to be conservative.

In response to Bullard's arguments that most chapter 13 debtors are not financially able to take appeals over minor issues, the Chief Justice makes reference to the issue of whether the Court's ruling would apply to chapter 11 reorganization cases:

These concerns are heightened if the same rule applies in Chapter 11, as the parties assume.  Chapter 11 debtors, often business entities, are more likely to have the resources to appeal and may do so on narrow issues.[14]

In response to Bullard's arguments that the ruling of the Court would leave debtors with only the options of accepting dismissal of the case after denial of plan confirmation or propose a plan that would meet the dictates of the bankruptcy court, if not the desires of the debtor, and appeal the confirmation of that plan, the Court stated that such options may be "unappealing" as the First Circuit noted.  Ultimately, however, if the issues involved in the denial of confirmation are significant enough, the Court pointed out that there are several procedural avenues to appeal an interlocutory, non-final, order.  And while interlocutory appeals "do not provide relief in every case, they serve as useful safety valves for promptly correcting serious errors and addressing important legal questions."[15]

Impact on Corporate Reorganization Plans.

Although the Bullard case involves an order denying confirmation of a chapter 13 plan, there is little reason to think that a different rule would apply to an order denying confirmation of a chapter 11 plan of reorganization, as long as the chapter 11 debtor maintains the right to file an amended plan after denial of confirmation.  However, the Bullard opinion does not resolve that issue notwithstanding the reference to chapter 11 cases within the opinion, as noted above.  The Chief Justice was careful to note that the parties assumed at oral argument that the Court's ruling would apply to chapter 11 cases.

Footnotes

[1] 575 U.S. ____ (2015), slip opinion available at http://www.supremecourt.gov/opinions/14pdf/14-116_9o6b.pdf  (hereinafter referred to as the "Slip Opinion").

[2] Although Bankruptcy Code Section 1322(b)(2) essentially prohibits the bifurcation and cram-down of a mortgage secured by the debtor's principal residence, the First Circuit Court of Appeals has held that this section "does not bar modification of a secured claim on a multi-unit property in which one of the units is the debtor's principal residence and the security interest extends to the other income-producing units."  Lomas Mortg., Inc. v. Louis, 82 F.3d 1, 7 (1st Cir.1996).

[3] In Re Bullard, 475 F.R. 304 (Bkrtcy. Ct. Mass. 2012).  The presiding bankruptcy judge was William C. Hillman.

[4] Id, at 314.

[5] In Re Bullard, 494 B.R. 92 (2013).

[6] Bullard slip opinion at 3.

[7] 494 B.R. at 101.

[8] In Re Bullard, 752 F. 3d 483 (2014).

[9] Id, at 486.

[10] Id, at 487.

[11] Slip Opinion at 5.

[12] Slip Opinion at 6.

[13] Slip Opinion at 7.

[14] Slip Opinion at 7.

[15] Slip Opinion at 11, 12.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

    Disclaimer

    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

    Registration

    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

    Cookies

    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

    Links

    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

    Mail-A-Friend

    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

    Emails

    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

    Security

    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions