The Unappealing Prospects For Debtors Whose Bankruptcy Plans Are Denied Confirmation

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...