A few months back I noted that the U.S. Supreme Court was going to hear a case on whether the denial of a chapter 13 repayment plan could be appealed. The justices of the Court may not see eye to eye on many issues, but in this case they unanimously held that the answer is no, in an opinion authored by Chief Justice John Roberts.
The case, Bullard v. Blue Hills Bank, began a few years ago when the petitioner, Louis Bullard, filed chapter 13 bankruptcy in Massachusetts. Bullard owed an underwater mortgage on a multifamily home, and he proposed a repayment plan that severed the mortgage into a secured portion that would survive the bankruptcy and an unsecured portion that would be discharged at the conclusion of his case. According to the opinion, he proposed paying about $5,000 out of the $101,000 portion of the unsecured claim. Roberts wrote, “The Bank (no surprise) objected to the plan.” So did the Massachusetts bankruptcy court. Bullard appealed the denial to a First Circuit Bankruptcy Appellate Panel (BAP), and then to the First Circuit Court of Appeals, which dismissed his case for lack of jurisdiction, leading to his Supreme Court appeal.
At issue was whether the denial of Bullard’s repayment plan constituted a “final order” in a “proceeding” that could be adjudicated by a higher court. If it were, then Bullard could convince the BAP to require the bankruptcy court to accept his repayment plan. If not, then he would have to propose a different plan. The Court decided that the definition of “proceeding” meant “the entire process of considering plans, which terminates only when a plan is confirmed or—if the debtor fails to offer any confirmable plan—when the case is dismissed.” Bullard was, and is, free to propose another plan.
The Court offered several other reasons to define the “proceeding” as the confirmation process rather than each plan proposal. One is time: Appeals can take months, and the Court did not like the idea of petitioners constantly appealing plan denials. The automatic stay continues through appeals, and the Court was concerned debtors would use that as leverage. Lack of appeal rights encourages debtors to negotiate with the trustee and creditors, and finally debtors have the right to modify plans.
The decision isn’t too surprising, but to be clear its sole purpose is to clarify a procedural matter, and doesn’t make Bullard (or similar debtors) worse off than before. He will just have to come up with a more agreeable plan. It’s possible, though, that Bullard filed in chapter 13 because he didn’t want to sell the underwater house. On the other hand, the lender won’t get fully repaid anyway.
The full text of Bullard can be found here (pdf).
If you have an underwater mortgage, a hybrid plan like the one Bullard proposed won’t be allowed unless the entire secured portion of the mortgage is repaid during the chapter 13 plan. Talking to an experienced New York bankruptcy lawyer can help you come up with alternatives.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Chapter 13 Bankruptcy Lawyer Brooklyn NY Bruce Weiner for a free initial consultation.