Since the enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) in 2005, courts have puzzled over whether Congress intended to eliminate the absolute priority rule for individual Chapter 11 debtors. The absolute priority rule precludes payment to a junior class of creditors or equity holders until all senior classes have been paid in full on their claims.
The rule is intended, inter alia, to prevent debtors from proposing plans that give themselves “too good of a deal” vis-à-vis their creditors. With the BAPCPA amendments, Congress altered the language of the absolute priority rule and added Section 1115 of the Bankruptcy Code, which governs property of the estate in a case in which the Chapter 11 debtor is an individual.
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