Judge Weil recently issued her decision in the Bullard case on the issue of the absolute priority rule and the retention of exempt property in the context of the confirmation of a chapter 11 plan for an individual debtor. In re Bullard, 358 B.R. 541 (Bankrtcy.D.Conn 2007).
The Court noted that there was a disagreement among the courts concerning whether a chapter 11 debtor may retain his exempt property and still comply with the absolute priority rule. Cases such as In re Gosman, 282 B.R. 45 (Bankr.S.D.Fla.2002) by one Bankruptcy Court Judge from the Southern District of Florida, held that the retention of exempt property violates the absolute priority rule. Judge Weil held that the better line of authority holds that the debtor’s retention of his exempt property does not violate the absolute priority rule as such retention is not “on account of…[the debtor's] junior interest…” The court explained that “[o]nce the exemptions are allowed the properties are no longer part of the Debtor’s estate, and the Debtor does not retain property on account of such interest because he retains it as a matter of right by virtue of recognition of his right to exemptions…”
The Bullard court did not base its decision on an argument that the BAPCPA amendments to 1129(b)(2)(B)(ii) effected a waiver of the absolute priority rule as to individual chapter 11 debtors as the debtor abandoned the argument.
