U.S. Supreme Court Holds Denial of Debtor’s Bankruptcy Plan Cannot Be Appealed

by James Berg on May 14, 2015

in Banking & Finance

U.S. Supreme Court Holds Denial of Debtor’s Bankruptcy Plan Cannot Be AppealedOn May 4, 2015, the U.S. Supreme Court held in Bullard v. Blue Hills Bank, No. 14-116, that a bankruptcy court’s denial of a debtor’s Chapter 13 bankruptcy plan cannot be appealed since that denial is not a final order that merits appeal.

Case Background

In 2010, Louis Bullard, a Massachusetts homeowner, filed Chapter 13 petition for bankruptcy. A portion of his debt included a mortgage of approximately $346,000.00 owned by Hyde Park Savings Bank (now Blue Hills Bank). Bullard and the lender acknowledged that the home was worth less than the outstanding mortgage debt. Bullard submitted a “hybrid” Chapter 13 plan that would have split his mortgage debt between a secured claim with the home as collateral and an unsecured claim for the underwater portion of the mortgage debt.

The U.S. Bankruptcy Court for the District of Massachusetts denied confirmation of the plan and ordered Bullard to submit a revised plan. Bullard appealed to the First Circuit Bankruptcy Appellate Panel, which affirmed the bankruptcy court’s ruling. Bullard then sought to appeal to the First Circuit, which dismissed the appeal on the grounds of lack of jurisdiction since the bankruptcy court’s decision was not final and therefore, not appealable.

U.S. Supreme Court Decision

In a unanimous decision, the U.S. Supreme Court aligned with the First Circuit and held that a denial with leave to amend is not final and therefore not appealable. Chief Justice Roberts noted:

“…only plan confirmation—or case dismissal—alters the status quo and fixes the rights and obligations of the parties…Denial of confirmation with leave to amend, by contrast, changes little. The automatic stay persists. The parties’ rights and obligations remain unsettled. The trustee continues to collect funds from the debtor in anticipation of a different plan’s eventual confirmation. The possibility of discharge lives on. ‘Final’ does not describe this state of affairs.”

The high court also found that permitting appeals from reorganization plan denials would create delays and inefficiencies in the bankruptcy process:

“As Bullard’s case shows, each climb up the appellate ladder and slide down the chute can take more than a year. Avoiding such de­lays and inefficiencies is precisely the reason for a rule of finality.”

Since 11 U.S.C. § 158 grants the right to appeal decisions made in cases being decided under either chapter of the Bankruptcy Code, this decision is likely to have a greater impact on Chapter 11 cases by providing negotiating leverage to creditors that prevail in objections to proposed plans. After Bullard, debtors will need to address creditor objections before a plan is appealable.

PIB Law is a multi-service law firm serving clients throughout New York, New Jersey, Pennsylvania, Massachusetts, Illinois, California and Texas. For more information, contact one of our experienced business attorneys at 908-725-9700.

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