## Facts

- James and Mrs. Ahlers operated a family farm and borrowed from Norwest Bank Worthington and other lenders, granting security interests in farmland, equipment, crops, livestock, and farm proceeds.
- The Ahlerses defaulted on loan payments in November 1984; Norwest initiated a state replevin action to recover secured equipment.
- The Ahlerses filed a Chapter 11 petition shortly after, triggering an automatic stay that halted the replevin action.
- Creditors sought relief from the automatic stay; the debtors proposed a reorganization plan that would:
  - Pay undersecured creditors less than the full amount of their claims, and
  - Allow the Ahlerses to retain their equity interest based on a proposed “new value” contribution consisting of continuing “labor, experience, and expertise” provided annually.

## Issues

1. Whether a Chapter 11 plan may be confirmed over a dissenting class of unsecured creditors when equity holders retain an interest in the debtor’s property in exchange for a promise of future labor, rather than a present contribution of “money or money’s worth,” under 11 U.S.C. § 1129(b)(2)(B)(ii).

## Decision

- The Supreme Court unanimously reversed the Eighth Circuit.
- The Court held that a promise of future labor, experience, and expertise is not “money or money’s worth” and cannot justify equity retention when unsecured creditors are not paid in full.
- The Court rejected the view that bankruptcy courts’ equitable powers permit confirmation of a plan that violates the statutory absolute priority rule.
- The case was remanded for further proceedings.

## Legal Principles

- Under the Chapter 11 “cramdown” standard, the absolute priority rule in 11 U.S.C. § 1129(b)(2)(B)(ii) requires that a dissenting class of unsecured creditors be paid in full before any junior class may receive or retain property under a plan.
- Any possible “new value” concept is limited to a contribution with present, realizable value—“money or money’s worth”—reasonably equivalent to the interest retained.
- A promise of future personal services is intangible, inalienable, and not presently realizable for creditors; it therefore does not satisfy “money or money’s worth.”
- Bankruptcy courts’ equitable authority must be exercised within the confines of the Bankruptcy Code and cannot be used to override the absolute priority rule.

## Conclusion

The Court held that Chapter 11 does not permit farm owners to retain equity over unpaid, objecting unsecured creditors based solely on promised future labor; any new-value theory requires a present, tangible contribution, and equitable discretion cannot rewrite statutory priorities.


Norwest Bank Worthington v. Ahlers (In re Ahlers), 485 U.S. 197 (1988)