© 2016 by Kornfield, Nyberg, Bendes, Kuhner & Little P.C. 

Ninth Circuit BAP Rules That Absolute Priority Rule Does Not Require an Individual Debtor to Pay for Exempt Property

August 28, 2019

In In re Ubaldo Juarez, the Ninth Circuit Bankruptcy Appellate Panel held that an individual in Chapter 11 Debtor may confirm a plan and “retain exempt property without making a commensurate ‘new value’ contribution.” There are multiple lower court decisions on this issue with divided results, and this was a case of first impression in the Ninth Circuit. The BAP decision implicated what is known as the absolute priority rule found in 11 U.S.C. Section 1129(b)(2)(B). In this case, the creditors argued that the debtor violated the absolute priority rule by retaining exempt property for which the debtor paid nothing. The BAP panel held that “exempt property is not properly included within the phrase ‘any property’ under the absolute priority rule.” The Panel concluded that “the bankruptcy court did not err in allowing [the debtor] to retain his exempt property without making a corresponding ‘new value’ contribution.”

 

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