Supreme Court to Decide Bankruptcy Issue

January 2, 2015

Imagine that you propose a Chapter 13 repayment plan to repay your creditors, but the bankruptcy court refuses to confirm it.  What can you do?

If you live in the Third, Fourth or Fifth circuits, you may immediately appeal the bankruptcy court’s decision. However, if you live in the First, Second, Sixth, Eighth, Ninth or Tenth circuits, you are stuck with either proposing another plan or having the case dismissed. In these circuits, only after the case is dismissed is the issue a final, appealable order.

Partly as a result of this split of opinion between the circuit appellate courts, the U.S. Supreme Court recently agreed to hear the issue as part of the case of Louis B. Bullard v. Hyde Park Savings Bank et al, a case on appeal from the First Circuit. In that case the debtor proposed a plan to split a home mortgage debt into secured and unsecured portions. Pursuant to the plan he would then pay the secured portion at one rate and the unsecured portion at the same rate as all other unsecured debts in the case. The bankruptcy court rejected the plan. When the debtor appealed, the appellate court found that the bankruptcy court’s rejection of the repayment plan was not a final order because the debtor could simply propose another plan.

This issue has potential far-reaching consequences in Chapter 13 and Chapter 11 business bankruptcy cases. The Supreme Court will likely hear oral arguments in the spring.

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