## Facts

- Deed and Note Traders, LLC (DNT), an Arizona real-estate investment company, owned single-family homes financed by property-specific secured lenders (Class 4 secured creditors).
- DNT filed a first Chapter 11 case in 2007, reporting roughly $30 million in secured debt and about $41 million in real estate assets.
- The first plan, confirmed in October 2008, treated Class 4 secured claims as fully secured, required creditors to retain liens, and provided for monthly payments with payment in full over time.
- Following the 2008 financial crisis, property values and credit availability sharply declined, and creditors asserted DNT defaulted on plan payments.
- The first plan was treated as substantially consummated, and the bankruptcy case closed in February 2010.
- Four days after closure, DNT filed a second Chapter 11 petition, reporting about $27 million in secured debt and approximately $20 million in real estate assets.
- In the second plan, DNT proposed to limit each secured creditor’s allowed secured claim to current collateral value and to confirm over objections under § 1129(b).
- Secured creditors moved to dismiss the second case and objected to confirmation, arguing the second plan was an improper serial filing and a de facto modification of the first plan barred by § 1127(b).
- The bankruptcy court denied dismissal, found extraordinary post-confirmation market changes, found good faith, and confirmed the second plan over objections; creditors appealed to the Ninth Circuit BAP.

## Issues

1. Whether a second Chapter 11 filing shortly after closure of a prior case with a substantially consummated plan constituted a bad-faith or abusive serial filing.
2. Whether confirmation of the second plan improperly modified the substantially consummated first plan in violation of 11 U.S.C. § 1127(b).
3. Whether the second plan satisfied Chapter 11 confirmation requirements, including cramdown standards under 11 U.S.C. § 1129(b), as to objecting secured creditors.

## Decision

- The Bankruptcy Appellate Panel affirmed confirmation of the second plan.
- The Panel held that a second Chapter 11 case is not per se prohibited after substantial consummation of a prior plan.
- The Panel agreed that extraordinary and unforeseeable post-confirmation changes in real estate and credit markets supported a finding of good faith and justified a new reorganization.
- The Panel rejected the argument that the second plan was barred by § 1127(b), treating it as a plan in a new case based on a new financial baseline rather than a prohibited modification in the prior case.
- The Panel found no reversible error in the bankruptcy court’s findings that the plan complied with § 1129(b) as applied to impaired, undersecured creditors.

## Legal Principles

- 11 U.S.C. § 1127(b) bars modification of a substantially consummated plan within the same Chapter 11 case, but does not automatically bar a later Chapter 11 filing.
- Serial Chapter 11 filings may be permissible when proposed in good faith and driven by extraordinary, unforeseeable post-confirmation changes that undermine feasibility of the prior plan.
- A second plan that reduces recoveries compared to a prior confirmed plan is not, by that fact alone, an impermissible plan modification; the focus is on good faith and compliance with confirmation standards in the new case.
- Under § 1129(b), a plan may be confirmed over secured creditor objections if it is fair and equitable and does not unfairly discriminate, including by limiting an undersecured creditor’s allowed secured claim to collateral value while preserving lien rights consistent with the Code.

## Conclusion

The Ninth Circuit BAP upheld confirmation of DNT’s second Chapter 11 plan, concluding that extraordinary post-confirmation market collapse supported a good-faith second filing and that § 1127(b) did not bar confirmation of a new plan in a new case that otherwise satisfied § 1129(b) cramdown requirements.


In re Deed & Note Traders, L.L.C., 2012 Bankr. LEXIS 1513 (B.A.P. 9th Cir. 2012)