Pub. 11 2020 Issue 2

Pub. 11 2020 I Issue 2 25 West Virginia Banker The Subchapter V plan must contain “ a brief history of the business operations of the debtor; a liquidation analysis; and projections with respect to the ability of the debtor to make payments under the proposed plan of reorganization. ” The debtor ’ s future earnings and income needed for execution of the plan must be used to make payments under the plan. The plan is expected to be completed in three years but may be extended to five. There is no absolute priority rule in Subchapter V. In a Chap- ter 11 case, a plan may be confirmed despite the objection of impaired classes if (i) at least one impaired class has accepted the plan and (ii) the equity interest holders do not retain their interests unless the objecting unsecured creditors receive full payment, requiring the debtor to infuse capital (a cramdown). These provisions do not apply in Subchapter V. Subchapter V does not require acceptance of the plan by at least one impaired class. Further, the court shall confirm a plan if, regarding each impaired class that has not accepted the plan, the plan (1) does not discriminate unfairly and (2) is fair and equitable as defined in Subchapter V. The plan must provide “ appropriate remedies ” for creditors, such as liquida- tion of nonexempt assets, if plan payments are not made. Subchapter V abrogates the long-standing rule that a mortgage loan secured by real property that is the principal residence of the debtor cannot be modified. Recognizing that many small-business owners use the equity in their principal residence to finance their business, Subchapter V allows the mortgage loan to be modified if the mortgagee ’ s interest is Debra Lee Allen has practiced law in the financial services industry for more than 30 years, representing banks, financial institutions, non-bank creditors, business owners, insurance companies,and bankruptcy trustees. Her current practice is focused on commercial loan recovery in West Virginia, Pennsylvania and Maryland. She can be reached at 304.291.7951 or dallen@spilmanlaw.com . not a purchase money security interest, and the loan was used primarily in the business of the debtor. The ability to modify the plan and the discharge provi- sions depends upon whether the plan is a consensual plan or a cramdown. A consensual plan may not be modified after substantial consummation of the plan, i.e., when plan payments commence, but a cramdown plan may be mod- ified through the term of the plan, assuming it meets the requirements of Subchapter V. The small business debtor receives a discharge upon confirmation of a consensual plan. Discharge is obtained upon completion of all plan payments in a cramdown plan. Subchapter V meanders through the Bankruptcy Code to pick up provisions from Chapters 7, 13, 12 and existing Chapter 11 to create its own special blend of provisions to rehabilitate the small business debtor, with a couple features all its own. No doubt practitioners will continue to find nuances in the framework that will provide years of interpretation by the bankruptcy courts. 