Section 9.78 Effect of Confirmation on Property of the Estate

• Library: Bankruptcy Practice (2007 Ed. + 2015 Cum Supp)

2. (§9.78) Effect of Confirmation on Property of the Estate

Except as otherwise provided in the plan or confirmation order, confirmation vests title to all property of the estate in the debtor. 11 U.S.C. § 1141(b).

Because all property vests in the debtor postconfirmation, the life of the Chapter 11 estate ends postconfirmation. In re Roy Gooden Plumbing & Sewer Co., 156 B.R. 635 (Bankr. E.D. Mo. 1993) (Barta, B.J.); see also In re Rickel & Assocs., Inc., 272 B.R. 74 (Bankr. S.D.N.Y. 2002) (debtor could not pursue turnover claim postconfirmation; no estate or debtor-in-possession remains to whom assets could be turned over); see also Harstad v. First Am. Bank, 39 F.3d 898 (8^th Cir. 1994) (debtor could not bring preference action postconfirmation). But see In re Payless Cashways, Inc., 290 B.R. 689 (Bankr. W.D. Mo. 2003) (Federman, C.J.) (trustee could bring adversary proceeding because any recovery would not only benefit debtor but would also benefit estate); In re EBG Health Care II, Inc., 303 B.R. 626 (Bankr. W.D. Mo. 2003) (Federman, C.J.) (debtor specifically reserved right to bring claim postconfirmation in plan).

Except as otherwise provided in the plan or confirmation order, after confirmation, property “dealt with” by the plan is free and clear of all claims and interests of creditors, equity security holders, and general partners in the debtor. Section 1141(c).

Practice Tip: A secured creditor should ensure that the plan provides for continuation of the creditor’s security interest under the plan, unless the creditor has agreed to release its security interest.

Query: Does the phrase “dealt with” in § 1141(c) require the plan to do anything more than provide for treatment of secured claims secured by liens on the property? If so, a proponent wishing to take advantage of § 1141(c) may have to describe the property and state that the property will be free of all claims and interests upon confirmation.

The language in § 1141(c) has been interpreted very strictly to avoid a harsh result caused by a discharge of a lien by a plan, particularly if the debtor did not otherwise take affirmative steps to challenge the lien. See, e.g., Relihan v. Exch. Bank, 69 B.R. 122 (S.D. Ga. 1985). But see In re Smith & Kourian, 216 B.R. 686 (B.A.P. 1^st Cir. 1997) (general language in plan that property remained “subject to any mortgage” preserved creditor’s mortgage and postconfirmation foreclosure was proper).

2015 SUPPLEMENT (§9.78)

2. (§9.78) Effect of...