In Re: Ganess Maharaj ( 2012 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: GANESS MAHARAJ; VENA 
MAHARAJ,
Debtors.
GANESS MAHARAJ; VENA MAHARAJ,
Plaintiffs-Appellants.
 No. 11-1747
STUBBS & PERDUE, P.A.; NATIONAL
ASSOCIATION OF CONSUMER
BANKRUPTCY ATTORNEYS,
Amici Supporting Appellants,
STEVEN HARRIS GOLDBLATT,
Court-Assigned Amicus Counsel.

Appeal from the United States Bankruptcy Court
for the Eastern District of Virginia, at Alexandria.
Stephen S. Mitchell, Bankruptcy Judge.
(09-15777-SSM)
Argued: March 22, 2012
Decided: June 14, 2012
Before DUNCAN, AGEE, and DIAZ, Circuit Judges.
Affirmed by published opinion. Judge Agee wrote the opin-
ion, in which Judge Duncan and Judge Diaz joined.
2 In Re: MAHARAJ
COUNSEL
ARGUED: Daniel Mark Press, CHUNG & PRESS, PC,
McLean, Virginia, for National Association of Consumer
Bankruptcy Attorneys, Amicus Supporting Appellants. Ann
Elizabeth Schmitt, CULBERT & SCHMITT, PLLC, Lees-
burg, Virginia, for Appellants. Nilam Ajit Sanghvi,
GEORGETOWN UNIVERSITY LAW CENTER, Washing-
ton, D.C., for Steven Harris Goldblatt, Court-Assigned
Amicus Counsel. ON BRIEF: Trawick H. Stubbs, Jr., Amy
Marvine Currin, Rodney A. Currin, Laurie B. Biggs, William
H. Kroll, Heather Kelly Pierce, Ashley Baxter Curry, John W.
King, STUBBS & PERDUE, P.A., New Bern, North Caro-
lina, for Stubbs & Perdue P.A., Amicus Supporting Appel-
lants. Brett Weiss, CHUNG & PRESS, LLC, Greenbelt,
Maryland; Tara Twomey, NATIONAL ASSOCIATION OF
CONSUMER BANKRUPTCY ATTORNEYS, San Jose, Cal-
ifornia, for National Association of Consumer Bankruptcy
Attorneys, Amicus Supporting Appellants. Steven H. Gold-
blatt, Director, Doug Keller, Supervising Attorney, Derek
Young, Emily Giarelli, Jina Moon, GEORGETOWN UNI-
VERSITY LAW CENTER, Appellate Litigation Program,
Washington, D.C., for Steven Harris Goldblatt, Court-
Assigned Amicus Counsel.
OPINION
AGEE, Circuit Judge:
In this direct appeal from the Bankruptcy Court, we address
a question of first impression in the circuit courts of appeal:
whether, in light of the 2005 amendments to the Bankruptcy
Code, 11 U.S.C. § 101 et seq. ("the Code"), codified by the
Bankruptcy Abuse Prevention and Consumer Protection Act
("BAPCPA"), Pub. L. No. 109-8, 119 Stat. 23 (2005), the
absolute priority rule continues to apply to individual debtors
In Re: MAHARAJ 3
in possession proceeding under Chapter 11.1 Because we
answer that question in the affirmative, we affirm the bank-
ruptcy court’s order denying plan confirmation.
I.
Because this appeal requires us to resolve a pure question
of law that has divided the nearly two dozen bankruptcy and
district courts that have faced it, we begin by setting forth that
background in detail. In subpart A, we recite the history of the
absolute priority rule. In subpart B, we describe the statutory
provisions relevant to determining whether the BAPCPA
abrogated the absolute priority rule for individual debtors pro-
ceeding under Chapter 11. In subpart C, we discuss the judi-
cial decisions to date addressing that question.
A.
We begin by setting forth the history of the absolute prior-
ity rule, which for reasons that will become clear, is signifi-
cant for our disposition here. The absolute priority rule traces
its origins to the latter half of the nineteenth century. The
Supreme Court articulated the earliest version of the rule in
response to widespread collusion in the context of railroad
reorganizations, just after the Civil War. The Court
announced that "stockholders are not entitled to any share of
the capital stock nor to any dividend of the profits until all the
debts of the corporation are paid." Chi., Rock Island & Pac.
R.R. v. Howard, 74 U.S. 392, 409-10 (1868). As the Supreme
Court later described, "[t]he rule had its genesis in judicial
construction of the undefined requirement of the early bank-
ruptcy statute that reorganization plans be ‘fair and equita-
ble.’" See Norwest Bank Worthington v. Ahlers, 485 U.S. 197,
202 (1988); see also Pub. L. No. 73-296, 48 Stat. 911, 919
1
A debtor proceeding under Chapter 11 is termed a debtor in possession
under 11 U.S.C. § 1101, but for simplicity we use the generic term
"debtor" for purposes of this opinion.
4 In Re: MAHARAJ
(1934) (amending the Bankruptcy Act to require a finding that
a plan is "fair and equitable and does not discriminate unfairly
in favor of any class of creditors or stockholders" for confir-
mation). In Case v. Los Angeles Lumber Products Co., 308
U.S. 106, 117 (1939), the Court for the first time used the
term "absolute priority" to describe the rule.
Although based on the "fair and equitable" requirements
found in § 77B of the Bankruptcy Act ("the Act"), the abso-
lute priority rule had itself never been codified under the Act.2
In fact, Congress expressly prohibited its further judicial
application by passing the 1952 amendments to the Act. See
Pub. L. 456, 66 Stat. 420, 433 (1952). In modifying the
requirements for confirmation of a plan of reorganization
under what was then Chapter XI of the Act, Congress
amended the Act such that: "[c]onfirmation of an arrangement
shall not be refused solely because the interests of a debtor,
or if the debtor is a corporation, the interest of its stockholders
or members will be preserved under the arrangement." Id.Instead, Congress provided for confirmation if the plan "is for
the best interest of the creditors and is feasible." Id.The legislative history to the 1952 amendments to the Act
2
Although Congress enacted federal bankruptcy laws in 1800, 1841, and
1867, the Bankruptcy Act of 1898, 30 Stat. 544, "marked the beginning
of the era of permanent federal bankruptcy legislation." Charles Jordan
Tabb, The History of the Bankruptcy Laws in the United States, 3 Am.
Bankr. Inst. L. Rev. 5, 23 (1995). As the Supreme Court later stated, the
purpose of the Act was to afford the emancipated debtor "[t]he new oppor-
tunity in life and the clear field for future effort." Local Loan Co. v. Hunt,
292 U.S. 234, 244 (1934).
Congress passed several amendments to the Act after 1898, but it under-
took a complete overhaul of the bankruptcy system with the passage of the
Bankruptcy Reform Act of 1978; Pub. L. No. 95-598, 92 Stat. 2549, 2682
(1978). See. e.g., Tabb, History of the Bankruptcy Laws, supra at 26-33.
The Bankruptcy Reform Act replaced the (Bankruptcy) Act with the Code,
culminating "almost a decade of study and debate about bankruptcy
reform[.]" Id. at 32.
In Re: MAHARAJ 5
reflects that Congress intended an express repeal of the judi-
cially created absolute priority rule in the context of Chapter
XI (which was designed for small, privately held businesses).3
"[T]he fair and equitable rule . . . cannot realistically be
applied . . . . Were it so applied, no individual debtor, [and]
no corporate debtor where the stock ownership is substantially
identical with management could effectuate an arrangement
except by payment of the claims of all creditors in full." H.R.
Rep. No. 82-2320 (1952) reprinted in 1952 U.S.C.C.A.N.
1960, 1981.
In 1978, Congress passed the Bankruptcy Reform Act of
1978, replacing the Act with the Code and creating the struc-
ture of modern bankruptcy practice. In enacting the Code,
Congress merged many aspects of Chapters X and XI (as well
as the infrequently-used Chapter XII) of the Act into the
newly created Chapter 11. See H.R. Rep. No. 95-595 at 223
(1978), reprinted in 1978 U.S.C.C.A.N. 5963, 6183 ("This
bill adopts a consolidated chapter for all business reorganiza-
tions."). In doing so, Congress specifically incorporated the
absolute priority rule into § 1129(b)(2)(B)(ii).4 Ahlers, 485
U.S. at 202. The absolute priority rule, as provided in § 1129,
remained unchanged until the passage of BAPCPA in 2005.
3
The absolute priority rule remained a fixture of Chapter X of the Act,
which was designed for public companies. See Ralph A. Peeples, Staying
In: Chapter 11, Close Corporations and the Absolute Priority Rule, 63
Am. Bankr. L. J. 65, 66 (1989).
4
The legislative history of the 1978 Act indicates that Congress per-
ceived a need for the new Chapter 11 to have "the flexibility of Chapter
XI . . . and . . . the essence of the public protection features [i.e. the abso-
lute priority rule] of current Chapter X." H.R. Rep. No. 95-595 at 224
(1978), reprinted in 1978 U.S.C.C.A.N 5963, 6183. "The areas of greatest
importance [in Chapter 11] are the financial standard for confirmation
[later described as the absolute priority rule]; the court hearing on the plan
and the report on the plan to creditors and stockholders; the right to pro-
pose a plan; and the appointment of a trustee." Id.
6 In Re: MAHARAJ
B.
Under the now-operative provisions of the Code, a bank-
ruptcy case under Chapter 11 commences with the filing of a
Chapter 11 petition in the bankruptcy court. 11 U.S.C. § 301.
Commencement of the case creates the bankruptcy estate,
which includes, pursuant to 11 U.S.C. § 541(a)(1), "all legal
or equitable interests of the debtor in property as of the com-
mencement of the case."
After filing a voluntary petition under Chapter 11, a debtor
may file a plan of reorganization with the bankruptcy court.
11 U.S.C. § 1121(a). In addition to numerous other require-
ments, a reorganization plan must specify classes of claims
against the debtor based on specific statutory requirements. 11
U.S.C. § 1123(a)(1). To be operative, a Chapter 11 reorgani-
zation plan must be confirmed by the bankruptcy court. A
precondition of plan confirmation is that it meet the require-
ments set forth in 11 U.S.C. § 1129(a).
Of particular import to this case is the requirement, found
at § 1129(a)(8)(A), that each impaired class of creditors
accept the plan. Pursuant to § 1129(b), however, a plan of
reorganization may be confirmed over the dissent of an
impaired class of creditors using a procedure commonly
known as a "cram down." The plan can avoid the require-
ments of § 1129(a)(8) in a cram down procedure "if the plan
does not discriminate unfairly, and is fair and equitable" to the
dissenting creditors. 11 U.S.C. § 1129(b)(1).
The Code inclusively sets forth, at § 1129(b)(2), specific
requirements that must be met for a plan to be "fair and equi-
table." Among those requirements is the absolute priority rule,
the construction of which is central to the disposition of this
appeal. Prior to 2005, the absolute priority rule (as codified)
was simply that, in order to be fair and equitable, a proposed
Chapter 11 plan must provide: "the holder of any claim or
interest that is junior to the claims of such [dissenting] class
In Re: MAHARAJ 7
will not receive or retain under the plan on account of such
junior claim or interest any property." 11 U.S.C.
§ 1129(b)(2)(B)(ii). In other words, if the proposed plan
allowed the debtor to retain property, any dissenting creditors
must be paid in full in order for the plan to be "crammed
down." See Ahlers, 485 U.S. at 202.
In 2005, Congress enacted BAPCPA, which we have previ-
ously described as an "attempt[ ] to reduce the spiraling costs
to society of bankruptcies." In re Ciotti, 638 F.3d 276, 279
(4th Cir. 2011). Although Congress, in enacting BAPCPA,
altered the Code in numerous respects, our focus is the
amendment to § 1129(b)(2)(B)(ii), which contains the abso-
lute priority rule. The Code, after BAPCPA, now states that
to be fair and equitable, a proposed plan must provide that:
the holder of any claim or interest that is junior to
the claims of such class will not receive or retain
under the plan on account of such junior claim or
interest any property, except that in a case in which
the debtor is an individual, the debtor may retain
property included in the estate under section 1115,
subject to the requirements of subsection (a)(14) of
this section.
Id. (2005 amendment emphasized).
Section 1115 (which was added to the Code by BAPCPA)
in turn provides:
(a) In a case in which the debtor is an individual,
property of the estate includes, in addition to the
property specified in section 541—
(1) all property of the kind specified in sec-
tion 541 that the debtor acquires after the
commencement of the case but before the
case is closed, dismissed, or converted to a
8 In Re: MAHARAJ
case under chapter 7, 12, or 13, whichever
occurs first; and
(2) earnings from services performed by the
debtor after the commencement of the case
but before the case is closed, dismissed, or
converted to a case under chapter 7, 12, or
13, whichever occurs first.
(b) Except as provided in section 1104 or a con-
firmed plan or order confirming a plan, the debtor
shall remain in possession of all property of the
estate.
11 U.S.C. § 1115.
C.
A significant split of authorities has developed nationally
among the bankruptcy courts regarding the effect of the BAP-
CPA amendments on the absolute priority rule when the
Chapter 11 debtor is an individual. Some courts have adopted
the "broad view" that, by including in § 1129(b)(2)(B)(ii) a
cross-reference to § 1115 (which in turn references § 541, the
provision that defines the property of a bankruptcy estate),
Congress intended to include the entirety of the bankruptcy
estate as property that the individual debtor may retain, thus
effectively abrogating the absolute priority rule in Chapter 11
for individual debtors. Other courts, adopting the "narrow
view," have held that Congress did not intend such a sweep-
ing change to Chapter 11, and that the BAPCPA amendments
merely have the effect of allowing individual Chapter 11
debtors to retain property and earnings acquired after the
commencement of the case that would otherwise be excluded
under § 541(a)(6) & (7).5
5
We adopt the terminology frequently used by commentators and courts
writing on the post-BAPCPA status of the absolute priority rule. That is,
the "broad view" represents a finding that the absolute priority rule has
been abrogated by BAPCPA, while the "narrow view" holds no abrogation
has occurred.
In Re: MAHARAJ 9
To date, one district court, one bankruptcy appellate panel,
and five bankruptcy courts have taken the "broad view" and
ruled, although on different grounds, that Congress intended
abrogation of the absolute priority rule. See In re Friedman,
466 B.R. 471 (9th Cir. BAP 2012); SPCP Group, LLC v. Big-
gins, 465 B.R. 316 (M.D. Fla. 2011); In re Shat, 424 B.R. 854(Bankr. D. Nev. 2010); In re Johnson, 402 B.R. 851 (Bankr.
N.D. Ind. 2009); In re Tegeder, 369 B.R. 477 (Bankr. D. Neb.
2007); In re Roedemeier, 374 B.R. 264 (Bankr. D. Kan.
2007); In re Bullard, 358 B.R. 541 (Bankr. D. Conn. 2007).
Some of these "broad view" courts have ruled Congress
intended abrogation on the basis of the "plain" language of
§ 1129(b)(2)(B)(ii). In Biggins, for example, the district court
reasoned
[s]ection 1115 says that "property of the estate
includes, in addition to the property specified in sec-
tion 541–(1) all property of the kind specified in sec-
tion 541 that the debtor acquires after the
commencement of the case," as well as "(2) earnings
from services performed by the debtor after the com-
mencement of the case." The plain reading of this
statute is that "property of the estate," for purposes
of Section 1115, includes property acquired and
earnings earned after the debtor files his or her
Chapter 11 petition, in addition to property specified
in section 541.
...
Reading these statutes together, "property of the
estate" for purposes of Section 1115 includes prop-
erty and earnings acquired both before and after the
commencement of the bankruptcy case.
465 B.R. at 322 (emphasis added); see Tegeder, 369 B.R. at
480 ("Since § 1115 broadly defines property of the estate to
10 In Re: MAHARAJ
include property specified in § 541, as well as property
acquired post-petition and earnings from services performed
post-petition, the [absolute priority] rule no longer applies to
individual debtors who retain property of the estate under
§ 1115.").
The Friedman panel majority reached a similar conclusion
based on its reading of the plain meaning of the words "in-
cluded" and "in addition to" in § 1115:
"Included" is not a word of limitation. To limit the
scope of estate property in §§ 1129 and 1115 would
require the statute to read "included, except for the
property set out in Section 541" (in the case of
§ 1129(b)(2)(B)(ii)), and "in addition to, but not
inclusive of the property described in Section 541"
(in the case of § 1115).
A plain reading of §§ 1129(b)(2)(B)(ii) and 1115
together mandates that the [absolute priority rule] is
not applicable in individual chapter 11 debtor cases.
Friedman, 466 B.R. at 482 (emphasis added) (footnote omit-
ted).
Other courts to adopt the "broad view" of the BAPCPA
amendments, however, have done so while rejecting a plain-
meaning approach. In Shat, for example, that bankruptcy
court described the phrase "property included in the estate
under section 1115" as "ambiguous" but nevertheless con-
cluded that Congress intended to abrogate the absolute prior-
ity rule for individual debtors. See 424 B.R. at 863-68. The
Shat court, relying on Roedemeier, reasoned that several other
BAPCPA amendments to Chapter 11 demonstrate that Con-
gress intended Chapter 11 procedures concerning individual
debtors to function more like those found in Chapter 13. Id.at 867 (citing Roedemeier, 374 B.R. at 276). The Roedemeier
court described the Chapter 11 amendments as "apply[ing]
In Re: MAHARAJ 11
only to individual debtors and [being] clearly drawn from the
Chapter 13 model." 374 B.R. at 275.
Independent of the changes made to the language of
§ 1129(b), the Shat court identified the following additional
amendments that, in its view, support the "broad view"
regarding absolute priority rule abrogation:
• changing the mandatory contents of a plan pursu-
ant to § 1123(a)(8) to resemble § 1322(a)(1);
• adding the disposable income test of § 1325(b) to
§ 1129(a)(15);
• delaying the discharge until the completion of all
plan payments as in § 1328(a);
• permitting discharge for cause before all pay-
ments are completed pursuant to § 1141(d)(5),
similar to the hardship discharge of § 1328(b);
and
• the addition of § 1127(e) to permit the modifica-
tion of a plan even after substantial consumma-
tion for purposes similar to § 1329(a).
Shat, 424 B.R. at 862. The Shat court concluded that these
amendments were "part of an overall design of adapting vari-
ous chapter 13 provisions to fit in chapter 11." Id. at 868.
Accordingly, in its view, reading the amendments to
§ 1129(b)(2)(B)(ii) as eliminating the absolute priority rule
for individual debtors would be consistent with the perceived
Congressional intent to harmonize the treatment of the indi-
vidual debtor under Chapter 11 with those under Chapter 13,
which has no absolute priority rule.
In further support of their view that Congress intended to
make Chapter 11 operate for individual debtors similarly to
12 In Re: MAHARAJ
Chapter 13, the Shat and Friedman courts noted that Congress
drafted the new § 1115 to mirror § 1306(a) of the Code,
which adds certain property to a § 541 bankruptcy estate in
the Chapter 13 context. See Friedman, 466 B.R. at 482; Shat,
424 B.R. at 862. Both §§ 1115 and 1306 are similarly pref-
aced with the language "property of the estate includes, in
addition to the property specified in section 541;" both also
list, in like terms, post-petition acquired property and earn-
ings. See 11 U.S.C. §§ 1115, 1306.
In addition, the Shat court noted its belief that "[t]he
broader view . . . saves Section 1129(b)(2)(B)(ii) from an
almost trivial reading," 424 B.R. at 868; a sentiment echoed
by the court in Roedemeier when it noted "the narrow reading
of the new exception in § 1129(b)(2)(B)(ii) would have little
impact on . . . probably most . . . individual debtors’[ ] ability
to reorganize in Chapter 11." 374 B.R. at 275. See Tegeder,
369 B.R. at 480, quoting Hon. William L. Norton, Jr., 4 Nor-
ton Bankruptcy Law & Practice 2d § 84A:1 ("A more narrow
interpretation [of § 1129(b)(2)(B)(ii)] would cause this
amendment to have little effect.").
On the other hand, over a dozen separate bankruptcy
courts, including the court below, have adopted the "narrow
view" and held that BAPCPA did not abrogate the absolute
priority rule in its entirety for individual Chapter 11 debtors.
See In re Arnold, ___ B.R. ___, 2012 WL 1820877 (Bankr.
C.D. Cal. May 17, 2012); In re Tucker, 2011 WL 5926757(Bankr. D. Or. 2011); In re Borton, 2011 WL 5439285(Bankr. D. Idaho 2011); In re Lindsey, 453 B.R. 886 (Bankr.
E.D. Tenn. 2011); In re Kamell, 451 B.R. 505 (Bankr. C.D.
Cal. 2011); In re Draiman, 450 B.R. 777 (Bankr. N.D. Ill.
2011); In re Maharaj, 449 B.R. 484 (Bankr. E.D. Va. 2009);
In re Walsh, 447 B.R. 45 (Bankr. D. Mass. 2011); In re Ste-
phens, 445 B.R. 816 (Bankr. S.D. Tex. 2011); In re Kar-
lovich, 456 B.R. 677 (Bankr. S.D. Cal. 2010); In re Steedley,
2010 WL 3528599 (Bankr. S.D. Ga. 2010); In re Gelin, 437
B.R. 435 (Bankr. M.D. Fla. 2010); In re Mullins, 435 B.R.
In Re: MAHARAJ 13
352 (Bankr. W.D. Va. 2010); In re Gbadebo, 431 B.R. 222(Bankr. N.D. Cal. 2010).
In reaching these decisions, courts have stated differing
rationales as to why the absolute priority rule remains valid in
individual Chapter 11 cases. Beginning with Gbadebo, sev-
eral of the above courts found that the language of
§ 1129(b)(2)(B)(ii) preserved the absolute priority rule in
unambiguous terms. See, e.g., Tucker, 2011 WL 5926757 at
*2; Draiman, 450 B.R. at 821 (relying on the "plain meaning"
of § 1129(b)(2)(B)(ii)); Walsh, 447 B.R. at 48-49 (quoting
Gbadebo, 431 B.R. at 229); Steedley, 2010 WL 3528599 at
*2; Mullins, 435 B.R. at 360; Karlovich, 456 B.R. at 681;
Borton, 2011 WL 5439285 at *4.
After discussing the contrary holding of Shat, the Gbadebo
court, in frequently quoted language, stated
[n]otwithstanding the thorough and thoughtful analy-
sis by the Shat court, the Court is unable to agree
with its conclusion. If the Court were writing on a
clean slate, it would view the language of
§ 1129(b)(2)(B)(ii) as unambiguous. The Court
would read the phrase "included in the estate under
section 1115" to be reasonably susceptible to only
one meaning: i.e., added to the bankruptcy estate by
§ 1115.
431 B.R. at 229.
Lindsey, Kamell, and Gelin, however, held that the lan-
guage of § 1129(b)(2)(B)(ii) was ambiguous. Lindsey in par-
ticular noted that, if the statute were not ambiguous, "there
would be no split of authority and the arguments in favor of
each position [would not be] so diverse." 453 B.R. at 903.
And both Gelin and Kamell noted the lack of direct (or help-
ful) legislative history for BAPCPA on the alteration of
14 In Re: MAHARAJ
§ 1129(b)(2)(B)(ii). See Gelin, 437 B.R. at 441; Kamell, 451
B.R. at 509.
A common thread running through many of the "narrow
view" cases is that if Congress had intended to abrogate the
absolute priority rule for individual Chapter 11 debtors, it
would have done so in a far less convoluted way, particularly
in light of the well established place of the absolute priority
rule in bankruptcy jurisprudence. See, e.g., Kamell, 451 B.R.
at 509. These cases note that if Congress had indeed had such
an intent, it could have simply added the words "except with
respect to individuals" at the beginning of § 1129(b)(2)(B)(ii).
Karlovich, 456 B.R. at 682.
Other "narrow view" cases take issue with the claim found
in "broad view" cases that Congress eliminated the absolute
priority rule for individuals to harmonize Chapter 11 with
Chapter 13. As the Karlovich court observed, "if that were
Congress’ intent, Congress would simply have amended the
statutory debt ceilings for Chapter 13 cases set out in 11
U.S.C. § 109(e), and either eliminate them altogether or set
them much higher." 456 B.R. at 682. Indeed, the court in
Lindsey reasoned that preservation of the absolute priority
rule was more consistent with Congressional intent in enact-
ing the BAPCPA. "[T]he narrow interpretation [is] more in
line with the primary purpose of BAPCPA to improve bank-
ruptcy law and practice by restoring personal responsibility
and integrity in the bankruptcy system and ensure that the sys-
tem is fair for both debtors and creditors." 453 B.R. at 904(quoting H.R. Rep No. 109-31, pt. 1, at 2) (internal quotation
marks omitted); see also Gbadebo, 431 B.R. at 229 ("No one
who reads BAPCPA as a whole can reasonably conclude that
it was designed to enhance the individual debtor’s ‘fresh
start.’").
The bankruptcy court below took a position in line with
other "narrow view" cases. After discussing the position taken
by the "broad view" courts that Congress may have intended
In Re: MAHARAJ 15
to harmonize Chapter 11’s procedures for individual debtors
with those of Chapter 13, the bankruptcy court quoted Mullins
for the proposition that "that purpose would have been more
straight-forwardly expressed by simply stating ‘except that in
a case in which the debtor is an individual, this provision shall
not apply,’ rather than by awkwardly referring to § 1115."
Maharaj, 449 B.R. at 493 (citation omitted). The court further
echoed the view taken by the Karlovich court that if Congress
intended for Chapter 11 to operate the same as Chapter 13 in
the case of an individual debtor, "Congress would have sim-
ply amended the statutory debt ceilings for Chapter 13 cases
set out in 11 U.S.C. § 109(e), and either eliminate them alto-
gether or make them much higher." Id.II.
We now turn to the factual background of this case and the
proceedings below. Ganess and Vena Maharaj (hereinafter
"Debtors") are the owners and operators of an auto body
repair shop in Chantilly, Virginia. Between 2006 and 2008,
Debtors were the victims of an apparent fraud that left them
saddled with considerable debt. Because their debts exceeded
the limits for proceeding in bankruptcy under Chapter 13 of
the Code, they filed a voluntary petition for relief under Chap-
ter 11 in the U.S. Bankruptcy Court for the Eastern District
of Virginia.6 Debtors have continued to own and operate their
auto body shop as debtors in possession throughout these pro-
ceedings.
6
"Only an individual with regular income that owes, on the date of the
filing of the petition, noncontingent, liquidated, unsecured debts of less
than $360,475 and noncontingent, liquidated, secured debts of less than
$1,081,400, or an individual with regular income and such individual’s
spouse, except a stockbroker or a commodity broker, that owe, on the date
of the filing of the petition, noncontingent, liquidated, unsecured debts that
aggregate less than $360,475 and noncontingent, liquidated, secured debts
of less than $1,081,400 may be a debtor under chapter 13 of this title." 11
U.S.C. § 109(e) (footnotes omitted).
16 In Re: MAHARAJ
In 2010, Debtors filed a Chapter 11 Plan of Reorganization
("the Plan") with the bankruptcy court. The Debtors’ Plan
proposed segregating creditors into four classes: Class I repre-
sented a $3.5 million claim by Access Bank, secured by Debt-
ors’ real property; Class II consisted of a claim held by an
automobile lender and secured by an interest in Debtors’ vehi-
cle; Class III contained most general unsecured claims; and
Class IV consisted of Access Bank’s unsecured claims. The
Plan provided that Debtors would continue to own and oper-
ate their auto body business and use income from the business
to pay the general unsecured claims of Class III creditors.
The Plan provided that Debtors would refinance their loan
agreements with Access Bank, the sole holder of claims in
Class I and IV. The automobile lender whose claim solely
comprised Class II was unimpaired by the Plan, as the Plan
provided that Debtors’ daughter would continue to make pay-
ments pursuant to the terms of the automobile financing
agreement. The holders of general unsecured claims found in
Class III were impaired, with Debtors proposing to pay an
estimated 1.7 cents on the dollar over a period of five years
to those claims.
Ballots were distributed to the creditors impaired by the
Plan. Access Bank, the sole holder of claims in Class I and
Class IV, voted to approve the Plan. The Class II creditor did
not vote. Discover Bank, the holder of a relatively small Class
III unsecured claim, was the only other creditor to return a
ballot, and voted to reject the Plan.
Nevertheless, Debtors sought to have the district court
engage in a cram down to confirm the Plan over Discover
Bank’s dissent. While acknowledging that under the absolute
priority rule, they would not be able to retain their auto body
business, Debtors argued that the bankruptcy court should
adopt the "broad view" of the BAPCPA amendments, and
hold that the absolute priority rule no longer applied to indi-
vidual Chapter 11 debtors. Debtors maintained that if they
In Re: MAHARAJ 17
were forced to comply with the absolute priority rule, they
would have to liquidate their business to effectuate a cram
down. Without their business, however, they would lack a
source of income, and be unable to make payments under the
Plan.
The bankruptcy court was not persuaded by Debtors’ argu-
ments and agreed with those courts that have held that Con-
gress did not intend to abrogate the absolute priority rule in
the case of individual Chapter 11 debtors. Rather, the court
adopted the "narrow view" that the BAPCPA amendments
"merely allowed a debtor to keep post-petition earnings and
other property acquired after the commencement of the case."
Maharaj, 449 B.R. at 492 (citation omitted). Although the
court expressed considerable sympathy for Debtors’ plight
and emphasized that neither the broad nor the narrow analysis
is "free from doubt," id. at 493, the court entered an order
denying confirmation of the Plan.
Debtors noted a timely appeal of the bankruptcy court’s
order. On its own motion, the bankruptcy court certified its
order for direct appeal to this Court pursuant to 28 U.S.C.
§ 158(d)(2)(A)(i) (allowing a direct appeal when the judgment
"involves a question of law as to which there is no controlling
decision of the court of appeals for the circuit or of the
Supreme Court of the United States, or involves a matter of
public importance"). A panel of this Court then authorized
Debtors’ direct appeal. See id.III.
This appeal presents a question of statutory interpretation,
which we review de novo. E.E.O.C. v. Great Steaks, Inc., 667
F.3d 510, 519 (4th Cir. 2012). As we have emphasized,
"[t]he starting point for any issue of statutory inter-
pretation . . . is the language of the statute itself."
United States v. Bly, 510 F.3d 453, 460 (4th Cir.
18 In Re: MAHARAJ
2007). "In that regard, we must first determine
whether the language at issue has a plain and unam-
biguous meaning with regard to the particular dis-
pute . . . and our inquiry must cease if the statutory
language is unambiguous and the statutory scheme is
coherent and consistent." Id. (omission in original)
(quoting United States v. Hayes, 453 F.3d 749, 752
(4th Cir. 2007), rev’d on other grounds, 555 U.S.
415 (2009) (internal quotation marks omitted). "We
determine the ‘plainness or ambiguity of the statu-
tory language . . . by reference to the language itself,
the specific context in which that language is used,
and the broader context of the statute as a whole.’"
United States v. Thompson-Riviere, 561 F.3d 345,
354-55 (4th Cir. 2009) (omission in original) (quot-
ing Robinson v. Shell Oil Co., 519 U.S. 337, 341
(1997).
Ignacio v. United States, 674 F.3d 252, 254 (4th Cir. 2012).
Furthermore, a statute is ambiguous if it "lends itself to more
than one reasonable interpretation[.]" Newport News Ship-
building & Dry Dock Co. v. Brown, 376 F.3d 245, 248 (4th
Cir. 2004). The matter of statutory ambiguity is an important
one because "[i]f the statute is unambiguous, our inquiry into
Congress’ intent is at an end, for if the language is plain and
the statutory scheme is coherent and consistent, we need not
inquire further." Kennedy v. St. Joseph’s Ministries, Inc., 657
F.3d 189, 191 (4th Cir. 2011) (internal quotation marks and
citation omitted).
Accordingly, we begin our analysis by reference to the lan-
guage of the BAPCPA, which we conclude is ambiguous
because it is susceptible to more than one reasonable interpre-
tation. We then look to the specific and broader context
within which Congress enacted the BAPCPA, as well as a
familiar canon of statutory construction, the presumption
against implied repeal, and conclude that Congress did not
intend to abrogate the absolute priority rule. Thus, notwith-
In Re: MAHARAJ 19
standing the ambiguity of the plain language of the relevant
BAPCPA provisions, when the 2005 BAPCPA amendments
are viewed in light of the specific context in which they were
enacted and the broader context of the BAPCPA and the field
of bankruptcy law, we arrive at the conclusion that Congress
did not intend to alter longstanding bankruptcy practice by
effecting an implied repeal of the absolute priority rule for
individual debtors proceeding under Chapter 11. Finally, we
consider, and reject, appellants’ public policy contentions as
unfounded.
A.
To determine whether the statutes at issue here have a plain
meaning, and are not ambiguous, we begin with the plain lan-
guage of the provisions at issue, and note that we must read
§§ 1115 and 1129(b)(2)(B)(ii) both individually and together.
Specifically, we must determine the meaning of the Congres-
sional language "property included in the estate under section
1115" found in § 1129(b)(2)(B)(ii) and "property of the estate
includes, in addition to the property specified in section 541"
found in § 1115.
There are two competing constructions of the "included in
the estate" language. On one view, the phrase "included in"
means the equivalent of "added to," since property of the
estate has long been defined under § 541. On another view,
however, this language "included in" means something closer
to "referenced" in § 1115, in which case § 541 was merely
"absorbed" and "superseded" into § 1115 for individual Chap-
ter 11 debtors. See, e.g., Kamell, 451 B.R. at 509. On the face
of the statute, either construction is plausible.
The same is true with respect to the "in addition to the
property specified in section 541" language found in § 1115.
Court-Assigned Amicus7 in this case asks us to treat that lan-
7
We thank court-assigned amicus counsel, the Appellate Litigation Pro-
gram at Georgetown University Law Center, for its able representation of
the bankruptcy court’s position in this matter.
20 In Re: MAHARAJ
guage as a signpost, used only to note that § 541 property is
already included in the bankruptcy estate, because it is set
aside from the rest of § 1115 by a comma and a dash, indicat-
ing that it is "not essential" to the statute’s meaning. Br. of
Court-Assigned Amicus Counsel at 21. Stated differently,
because § 541 independently includes all § 541 property in
the estate, it would be a redundancy to "reinclude" that prop-
erty through the § 1115 language. On the other hand, several
bankruptcy courts have noted that a plausible reading of that
language (coupled with the "included in the estate" language)
indicates that § 541 operates in § 1115 as a subset of § 1115.
See, e.g., Friedman, 466 B.R. at 482. By that construction,
§ 541 property, which is referenced by § 1115, is literally
"property included in the estate under § 1115."
In light of the foregoing, we conclude that the language of
§ 1129(b)(2)(B)(ii) and § 1115 lends itself to more than one
reasonable interpretation, and thus does not have a "plain"
meaning. Perhaps the only thing that is clear and plain is that
the courts that have considered this issue have arrived at plau-
sible, competing arguments as to why their respective
approaches are consistent with Congressional purpose in
enacting BAPCPA. In short, the meaning of the BAPCPA
amendments is anything but "plain." It is ambiguous. See
Friedman, 466 B.R. at 485 (Jury, J., dissenting) ("[T]he
meaning of the words is not plain. There can be more than
one cogent interpretation of their meaning and intent[.]").
B.
As we discussed above, in addition to analyzing the plain-
ness or ambiguity the statute’s language, we must also look
to the specific context in which that language is used, and the
broader context of the statute as a whole. In doing so, we find
persuasive the argument that the amendment to
§ 1129(b)(2)(B)(ii) preserved the absolute priority rule as it
operated prior to the passage of BAPCPA.
In Re: MAHARAJ 21
[P]rior to BAPCPA, property of the estate did not
include post-petition acquired property and earnings
for individuals and non-individuals alike. Hence,
post-petition acquired property and earnings could
be retained by a Chapter 11 debtor, individual and
non-individual alike, without running afoul of the
[absolute priority rule]. The addition of § 1115
potentially changed that by adding to the property of
the estate of an individual post-petition acquired
property and earnings. Without a corresponding
change to § 1129(b)(2)(B)(ii), individual debtors
could no longer retain post-petition acquired prop-
erty and earnings if they wished to "cram down" a
plan. By adding the language excepting the § 1115
property from the [absolute priority rule] of
§ 1129(b)(2)(B)(ii), Congress merely ensured that
the [absolute priority rule] would be the same as it
had been prior to BAPCPA and be the same for all
Chapter 11 debtors. In other words, what Congress
took from the individual debtor with its
§ 1115–hand, it returned for application of the [abso-
lute priority rule] with its § 1129(b)(2)(B)(ii)-hand.
Karlovich, 456 B.R. 677, 681. In this respect we do not agree
with the claim, advanced by some of the "broad view" courts,
e.g., Tegeder, 369 B.R. at 480, that a narrow reading of the
amendments renders § 1115 trivial. To the contrary, the "nar-
row view" of § 1115 "brings post-petition acquired property
into the estate, thereby extending the automatic stay in Chap-
ter 11 cases to an individual debtor’s postpetition earnings
and subject[ing] those earnings to the various tests for confir-
mation of the Chapter 11 plan." Gelin, 437 B.R. at 442 (cita-
tion omitted). At the same time, § 1129(b)(2)(B)(ii) permits
the debtor to retain that property during the Chapter 11 pro-
ceeding and not put it at risk in a cram down analysis.
In our view, the context demonstrates that Congress
intended § 1115 to add property to the estate already estab-
22 In Re: MAHARAJ
lished by § 541. This position is supported by the Sixth Cir-
cuit’s holding in In re Seafort, 669 F.3d 662 (6th Cir. 2012),
in which the court interpreted § 1306(a)—the parallel Chapter
13 provision to § 1115.8 The Sixth Circuit interpreted the stat-
ute as follows: "Section 1306(a) expressly incorporates § 541.
Read together, § 541 fixes property of the estate as of the date
of filing, while § 1306 adds to the ‘property of the estate’
property interests which arise post-petition." Seafort, 669 F.3d
at 667.
C.
Strongly supporting our conclusion that the BAPCPA
amendments did not abrogate the absolute priority rule is the
Supreme Court’s view, especially in the bankruptcy context,
that implied repeal is strongly disfavored. Indeed, Debtors
concede that adoption of their position would represent a sig-
nificant departure from pre-BAPCPA bankruptcy practice.
See Debtors’ Opening Br. at 18 ("[E]limination of the abso-
lute priority rule represents a significant change from pre-
BAPCPA law.").
As a general matter, "‘repeals by implication are not
favored,’ and therefore, ‘the intention of the legislature to
repeal must be clear and manifest.’" The Last Best Beef, LLC
v. Dudas, 506 F.3d 333, 338 (4th Cir. 2007) (quoting TVA v.
8
11 U.S.C. § 1306(a) provides:
Property of the estate includes, in addition to the property speci-
fied in section 541 of this title—
(1) all property of the kind specified in such section that the
debtor acquires after the commencement of the case but before
the case is closed, dismissed, or converted to a case under chapter
7, 11, or 12 of this title, whichever occurs first; and
(2) earnings from services performed by the debtor after the com-
mencement of the case but before the case is closed, dismissed,
or converted to a case under chapter 7, 11, or 12 of this title,
whichever occurs first.
In Re: MAHARAJ 23
Hill, 437 U.S. 153, 189 (1978)); see Hui v. Castaneda, 130 S.
Ct. 1845, 1853 (2010) ("As we have emphasized, repeals by
implication are not favored and will not be presumed unless
the intention of the legislature to repeal is clear and manifest."
(quoting Hawaii v. Office of Hawaiian Affairs, 556 U.S. 163,
175 (2009))).
The canon against implied repeal is particularly strong in
the field of bankruptcy law. In interpreting the Code, we are
mindful that courts "will not read the Bankruptcy Code to
erode past bankruptcy practice absent a clear indication that
Congress intended such a departure." Hamilton v. Lanning,
130 S. Ct. 2464, 2467 (2010); see also Hall v. United States,
___ S. Ct. ___, No. 10-875, 2012 WL 1658456, Slip op. at 11
(May 14, 2012) (same) (citing Cohen v. de la Cruz, 523 U.S.
213, 221 (1998)); cf. Midlantic Nat. Bank v. N.J. Dep’t of
Envtl. Prot., 474 U.S. 494, 501 (1986) (citing Swarts v. Ham-
mer, 194 U.S. 441, 444 (1904)) ("If Congress wishes to grant
the trustee an extraordinary exemption from nonbankruptcy
law, the intention would be clearly expressed, not left to be
collected or inferred from disputable considerations of conve-
nience in administering the estate of the bankrupt."); Palmer
v. Massachusetts, 308 U.S. 79, 85 (1939) ("If this old and
familiar power of the states was withdrawn when Congress
gave district courts bankruptcy powers over railroads, we
ought to find language fitting for so drastic a change."); In re
Timbers of Inwood Forest Assocs., Ltd., 793 F.2d 1380, 1382
(5th Cir. 1986) ("We think it unlikely that Congress would
have adopted such a rule—entailing, as it does, major changes
in the way in which a reorganization proceeding is conduct-
ed—without clear, unequivocal statements to that effect in the
bankruptcy statute, or, at least, in its legislative history.").
In discussing whether Congress, in enacting the Chandler
Act of 1938, intended to extend the jurisdiction of bankruptcy
courts over certain mortgage lien enforcement actions, the
Supreme Court worried that "[i]f [the statute] is read to extend
the power of the bankruptcy court to the present situation, the
24 In Re: MAHARAJ
four month period [governing the delivery of certain property
to the bankruptcy court] will have acquired a new significance
in bankruptcy law." In re John M. Russell, Inc., 318 U.S. 515,
521 (1943). The Court continued: "[w]e cannot help but think
that if Congress had set out to make such a major change,
some clear and unambiguous indication of that purpose would
appear." Id.Below, we discuss the ambiguous language of the statute
and sparse legislative history and conclude that Congress
made no clear statement of repeal. We go on to consider, and
reject, Debtors’ and their amici’s contention that Congress
repealed the absolute priority rule with the intent of harmoniz-
ing Chapter 11 and Chapter 13 for individual debtors.
1.
Looking to the text of both §§ 1129(b)(2)(B)(ii) and 1115,
we find no clear indication that Congress intended to abrogate
the longstanding absolute priority rule for individual Chapter
11 debtors. As we discussed above, the language at issue is
ambiguous, and we are unable to draw from it a clear Con-
gressional intent to abrogate the rule. To the contrary, we are
in agreement with those courts that have concluded that, if
Congress intended to abrogate such a well-established rule of
bankruptcy jurisprudence, it could have done so in a far less
convoluted manner. As the Kamell court persuasively
observed:
[T]he [absolute priority rule] or something very like
it has been acknowledged as far back as at least the
1890’s. It has long been held that major changes to
existing practice will not be inferred unless clearly
mandated. Further, as observed by the U.S. Supreme
Court when it upheld application of the [absolute pri-
ority rule] in Norwest Bank Worthington v. Ahlers,
despite the newly enacted Chapter 12, "where, as
here, Congress adopts a new law . . . it normally can
In Re: MAHARAJ 25
be presumed to have had knowledge of the interpre-
tation given to the old law." From such awkward and
convoluted language the court cannot infer that Con-
gress truly intended such a wide and important
change in individual Chapter 11 practice as discard-
ing the [absolute priority rule].
451 B.R. at 509-10 (internal citations, alterations, and quota-
tion marks omitted).9
Similarly, there is simply no clear indication from the lan-
guage of either §§ 1129(b)(2)(B)(ii) or 1115 that Congress
intended such a dramatic departure from pre-BAPCPA bank-
ruptcy practice. Absent such a clear statement, we must
refrain from adopting the "broad view" and cannot conclude
that the absolute priority rule has been abrogated for individ-
ual debtors in a Chapter 11 proceeding.
Furthermore, there is nothing in the BAPCPA’s legislative
history that suggests that Congress intended to repeal the
absolute priority rule. To say the least, that would be an odd
occurrence for such a significant change. As many courts in
a variety of contexts have noted, BAPCPA’s legislative his-
tory is sparse. See, e.g., In re Jass, 340 B.R. 411, 416 (Bankr.
D. Utah 2006) (internal citation and quotation marks omitted)
(noting that "the Congressional record is largely silent
because the only records available are little more than a gloss
of the statutory language of BAPCPA"); In re Davis, 348 B.R.
449, 457 (Bankr. E.D. Mich. 2006) (describing BAPCPA’s
legislative history as "scant"). A glean of the Congressional
record reveals that there is simply no indication whatsoever
9
In addition, as at least one bankruptcy court has noted, the "broad
view" of the BAPCPA amendments may render certain parts of the Code
superfluous. "The language ‘in addition to the property specified in section
541’ . . . would render surplusage the words ‘all property of the kind spec-
ified in section 541’ in Section 1115(a)(1), if Section 1115 is interpreted
to include all property of the estate." Stephens, 445 B.R. at 820-21.
26 In Re: MAHARAJ
that Congress intended to repeal the absolute priority rule for
individual debtors.
The lack of any clear statement, either in the text of
§ 1129(b)(2)(B)(ii) or the legislative history of BAPCPA, is
fatal to the "broad view" for at least two reasons. First, as
Court-Assigned Amicus Counsel notes, Congress does dis-
cuss in the BAPCPA legislative history instances where BAP-
CPA changes longstanding bankruptcy practice. See H.R.
Rep. 109-31(I) at *97. But in the section of the legislative his-
tory appearing beneath the label "Consumer Creditor Bank-
ruptcy Protections" there is simply no mention whatsoever of
abrogation of the absolute priority rule. This Congressional
silence is telling.
Second, the "narrow view" is supported by the history of
the absolute priority rule, as described at the outset of our
opinion. When Congress amended the Act in 1952 to elimi-
nate the "fair and equitable" requirement, it clearly explained
its actions in the accompanying legislative history. Not only
did Congress amend the Act to state that plan confirmation
shall not be refused because "the interest of a debtor . . . will
be preserved under the arrangement," but Congress explained
itself in the Congressional Record: "[T]he fair and equitable
rule . . . cannot realistically be applied[.]" See H.R. Rep. 82-
2320. History shows that Congress knows how to abrogate the
absolute priority rule, and it has not done so here.
2.
Nor are we persuaded by the contention, advanced by Debt-
ors and their amici, that all the foregoing is overridden
because abrogation of the absolute priority rule for individual
Chapter 11 debtors is congruent with the Congressional goal
of harmonizing Chapter 11 proceedings for individuals with
those in Chapter 13. They note that prior to 2005, individual
debtors had the option of proceeding under Chapter 7, in
which case the debtor could retain certain exempt property
In Re: MAHARAJ 27
and obtain a discharge of debt. BAPCPA, however, amended
Chapter 7 to include a means test as a barrier for the use of
Chapter 7 by some debtors. 11 U.S.C. § 707(b). Thus, debtors
earning over a certain median income must either proceed
under Chapter 11 or Chapter 13. Debtors who are unable to
utilize Chapter 7, and whose debts exceed the limits found at
§ 109(e), must proceed under Chapter 11. According to the
argument advanced by Debtors and their amici, the Congres-
sional goal of forcing certain debtors who would otherwise
proceed under Chapter 7 to repay their creditors from their
disposable income would be thwarted if Chapter 11 was not
a viable alternative for those ineligible for Chapter 13. Br. of
Amicus NACBA at 14.
Putting aside for now the difficulty of assuming that Con-
gress intended such a sea change without a clear statement
either in the Code or the legislative history, we are still not
persuaded that Congress intended to do so. First, we again
encounter the problem that Congress could have effected the
changes that Debtors argue it sought in a far less awkward
and convoluted manner by simply raising the Chapter 13 debt
limits and making additional individuals eligible to proceed
under that chapter. See Karlovich, 456 B.R. at 682; see also
Mullins, 435 B.R. at 360-61 ("[I]f it had been the intent of
Congress to eliminate entirely the operation of the [absolute
priority rule] from individual chapter 11 cases, it would have
been much clearer, easier and more direct for it to have said
simply in § 1129(b)(2)(B)(ii) ‘except that in a case in which
the debtor is an individual, this provision shall not apply’ in
lieu of the language which it did use . . . .").
More importantly, however, we are not in accord with
those courts adopting the "broad view" on the supposition that
Congress was necessarily attempting to make Chapter 11 for
individuals function in all respects more like Chapter 13. As
the Gbadebo court observed:
Each one of these new provisions appears designed
to impose greater burdens on individual chapter 11
28 In Re: MAHARAJ
debtors’ rights so as to ensure a greater payout to
creditors. This was a frequently expressed overall
purpose of BAPCPA: i.e., to ensure that debtors who
can pay back a portion of their debts do so. No one
who reads BAPCPA as a whole can reasonably con-
clude that it was designed to enhance the individual
debtor’s "fresh start."
The Shat Court asserts that the [absolute priority
rule] makes it virtually impossible for an individual
Chapter 11 debtor to confirm a plan that does not
provide for payment in full to the holders of unse-
cured claims. To the contrary, such a plan may be
confirmed if the holders of such claims vote in favor
of the plan. They are likely to do so if a reasonable
dividend is proposed, and they conclude that they
will receive no dividend in a Chapter 7 case.
431 B.R. at 229-30. It may well be that Congress intended in
some respects to harmonize the provisions of Chapter 11 as
they relate to individual debtors with those of Chapter 13.
However, neither the language of the statute nor the legisla-
tive history of BAPCPA compels such a conclusion, and
much less so that Congress intended such a dramatic change
in bankruptcy law as abrogation of the absolute priority rule.
D.
Because we conclude, based on our analysis of the specific
and broader context of the BAPCPA, that Congress did not
intend to repeal the absolute priority rule for individual debt-
ors in Chapter 11 cases, we are not obligated to consider
Debtors and amici’s public policy arguments. Cf. Hall, Slip
op. at 16 ("[T]here may be compelling policy reasons for
treating postpetition income tax liabilities as dischargable. But
if Congress intended that result, it did not so provide in the
statute."). Even were public policy considerations pertinent to
our decision, however, we do not agree that public policy nec-
In Re: MAHARAJ 29
essarily supports Debtors’ interpretation of the Code. More-
over, in view of the strong arguments recited above
supporting the "narrow view," relying on a vague public pol-
icy rationale would be the weakest of reeds upon which to
reach a contrary conclusion.
Debtors’ primary contention on appeal with respect to pol-
icy is that continued application of the absolute priority rule
for individual Chapter 11 debtors makes it more difficult to
confirm a plan of reorganization, contrary to the goals of
Chapter 11. The rule, the argument goes, is antithetical to the
aims of Chapter 11 because if a debtor who is a sole propri-
etor is forced to sell a business that is a sole source of income,
the debtor will have insufficient means to fund payments
under the plan.
First, as noted above, we do not agree that Congress, in
enacting BAPCPA, necessarily intended to provide greater
benefits to debtors as compared to protections for creditors.
The second full paragraph of the House Report on BAPCPA
describes the BAPCPA amendments in favor of the interests
of creditors:
the proposed reforms respond to many of the factors
contributing to the increase in consumer bankruptcy
filings, such as lack of personal financial account-
ability, the proliferation of serial filings, and the
absence of effective oversight to eliminate abuse in
the system. The heart of the bill’s consumer bank-
ruptcy reforms consists of the implementation of an
income/expense screening mechanism ("needs-based
bankruptcy relief" or "means testing"), which is
intended to ensure that debtors repay creditors the
maximum they can afford. S. 256 also establishes
new eligibility standards for consumer bankruptcy
relief and includes provisions intended to deter serial
and abusive bankruptcy filings. It substantially aug-
ments the responsibilities of those charged with
30 In Re: MAHARAJ
administering consumer bankruptcy cases as well as
those who counsel debtors with respect to obtaining
such relief. In addition, the bill caps the amount of
homestead equity a debtor may shield from creditors,
under certain circumstances.
H.R. Rep. No. 109-31(I), *89. The next paragraph, discussing
the additional consumer protections found in BAPCPA, is
silent with respect to the absolute priority rule. It is for this
reason that we agree with the Gbadebo court’s assessment
that "[n]o one who reads BAPCPA as a whole can reasonably
conclude that it was designed to enhance the individual debt-
or’s ‘fresh start.’" 431 B.R. at 229.
We also reject Debtors’ argument that retention of the
absolute priority rule for individual debtors makes confirma-
tion impossible. The absolute priority rule unquestionably
applied to individuals from 1978 to 2005, and during that time
classes of unsecured creditors were always able to take advan-
tage of the rule to veto confirmation of a plan where a debtor
sought to retain property. See Ahlers, 485 U.S. at 202 ("There
is little doubt that a reorganization plan in which respondents
retain an equity interest in [their] farm is contrary to the
[absolute priority rule]."). "Faced with statutory silence, we
presume that Congress is aware of the legal context in which
it is legislating." Palisades Collections LLC v. Shorts, 552
F.3d 327, 334 n.4 (4th Cir. 2008) (internal alterations omit-
ted); see Hall, Slip op. at 16 ("When Congress amends the
bankruptcy laws, it does not write on a clean slate.") (quoting
Dewsnup v. Timm, 502 U.S. 410, 419 (1992)) (internal quota-
tion marks omitted). Debtors would have us hold that Con-
gress decided to address this "harsh" outcome in the most
oblique way possible, and yet omit any mention of this rem-
edy from the legislative history. That, we are not prepared to
do.
Moreover, we remain unconvinced that the doom and
gloom scenario presented by Debtors is an accurate picture of
In Re: MAHARAJ 31
the state of bankruptcy law. Debtors assume that, if the abso-
lute priority rule is left intact, consensual confirmation is vir-
tually impossible. To the contrary, plan acceptance is still
very much a possibility, even within the confines of the abso-
lute priority rule. Debtors "may negotiate a consensual plan,
pay higher dividends, pay dissenting classes in full, or comply
with the [absolute priority rule] by contributing prepetition
property." Friedman, 466 B.R. at 491 (Jury, J., dissenting)
(citing Kamell, 451 B.R. at 512; Gbadebo, 431 B.R. at 229-
30).
IV.
As the bankruptcy court below observed, no analysis of this
issue is "free from doubt." However, for the reasons set forth
above, we believe that Congress did not intend to abrogate the
absolute priority rule for individual Chapter 11 debtors. The
dramatic nature of such a departure from longstanding pre-
BAPCPA law, the ambiguous language of the statutes, and
the total lack of any indication in the legislative history of
such an intent, lead us to conclude that Congress intended to
and did preserve the absolute priority rule. Congress knows
how to eliminate or partially abrogate the absolute priority
rule; it has done so before, but did not do so again in BAP-
CPA.
Accordingly, we conclude that the absolute priority rule as
it applies to individual debtors in Chapter 11 has not been
abrogated by BAPCPA, and we affirm the bankruptcy court’s
order denying plan confirmation.
AFFIRMED