Bankruptcy Plan Appeal Fails to Sway High Court

     (CN) – A unanimous U.S. Supreme Court on Monday ruled a debtor who filed for Chapter 13 bankruptcy protection does not have the right to appeal when a court refuses to ratify his plan for repaying creditors.
     Louis Bullard is the owner of a property in Randolph, Mass., on which Blue Hills Bank, formerly known as Hyde Park Savings Bank, holds a $387,000 mortgage.
     On December 14, 2010, Bullard filed a voluntary petition for Chapter 13 bankruptcy, and over the next two years, he amended his filing three times, adding, finally, a proposed “hybrid” repayment scheme, which divided his debt into a secured claim, backed by the property, and an unsecured claim.
     Under the plan, Bullard planed to continue to make his regular mortgage payments toward the secured claim, which he would eventually pay in full. It was an altogether different matter when it came to the unsecured claim. Bullard planned to treat that the same as any other unsecured debt, paying only as much as his income allowed over the course his five-year plan. At the end of this period, any balance on the unsecured portion of his debt would be discharged.
     In practice, Bullard’s plan called for him to pay only about $5,000 of the $101,000 unsecured plan.
     On July 24, 2012, a bankruptcy court rejected the plan because it viewed Bullard’s proposal as inconsistent with certain provisions of the Bankruptcy Code. On appeal, a bankruptcy appellate panel affirmed.
     Bullard, however, was undeterred, particularly in light of a split among the circuits on the question of appeal ability in cases like his; what he called, “a long line of decisions [that] has established that finality in bankruptcy is a broader concept than finality in ordinary civil litigation.”
     In essence, his argument before the high court was that a bankruptcy court conducts a separate proceeding each time it reviews a proposed repayment plan, and therefore a court’s order either confirming or denying a plan terminates the proceeding and is final and immediately appealable.
     The justices, however, took a different view. They concluded the relevant proceeding is the entire process of attempting to arrive at an approved plan — what Chief Justice John Roberts described in his opinion as “an aggregation of individual controversies” — that would allow the bankruptcy case to move forward.
     Only plan conformation, or case dismissal, alters the status quo and fixes the parties’ rights and obligations. By that logic, the Justices said, denial of confirmation with leave to amend — as was the case in Bullard — changes little and therefore can hardly be described as final.
     “When confirmation is denied and the case is dismissed as a result, the consequences are … significant,” Roberts wrote. “Dismissal of course dooms the possibility of a discharge and the other benefits available to a debtor under Chapter 13. Dismissal lifts the automatic stay entered at the state of bankruptcy, exposing the debtor to creditors’ legal actions and collection efforts. … And it can limit the availability of an automatic stay in a subsequent bankruptcy case.
     “Denial of confirmation with leave to amend, by contrasts, changes little. The automatic stay persists. The parties’ rights and obligations remain unsettled. The trustees continues to collect funds from the debtor in anticipation of a different plan’s eventual confirmation. The possibility of discharge lives on. ‘Final’ does not describe this state of affairs,” Roberts said.
     The chief justice likened the situation to buying a car.
     In that case, Roberts wrote, “A car buyer’s declining to pay the sticker price is viewed as a ‘final’ purchasing decision by either the buyer or seller.”
     “It ain’t over till it’s over,” he said.
     Robert also rejected Bullard’s argument that appeals of repayment plan rejects should be considered an essential part of the process — rejection of a plan being followed by an immediate appeal, and then, only if that appeal is unsuccessful, should a debtor revise his plan.
     “As Bullard’s case shows, each climb up the appellate ladder and slide down the chute can take more than a year,” the chief justice wrote before going on to observe that “Debtors do not typically have the money or incentives to take appeals over small beer issues. They will only appeal relatively rare denials based on significant legal rulings – precisely the cases that should proceed promptly to the courts of appeals.”
     “We think that in the ordinary case treating only confirmation or dismissal as final will not unfairly burden a debtor,” Roberts concluded. “He retains the valuable exclusive right to propose plans, which he can modify freely. … The knowledge that he will have no guaranteed appeal from a denial should encourage the debtor to work with creditors and the trustee to develop a confirmable plan as promptly as possible. And expedition is always an important consideration in bankruptcy.”

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