Individual Chapter 11 Debtors Cannot Escape The Absolute Priority Rule

In a case of first impression before the 9th Circuit, on January 28, 2016, the Court held that the Absolute Priority Rule applies in all chapter 11 cases, even if the debtor is an individual. In re Zachary. In relevant part, the Absolute Priority Rule (Rule) provides that a dissenting class of unsecured creditors must be provided for in full before the debtor can receive or retain any property under a reorganization plan. Through the Zachary decision, the 9^th Circuit has answered the question: what property can the individual debtor retain and not pay to creditors, without running afoul of the Absolute Priority Rule? The answer is -- only property acquired by the debtor after his or her bankruptcy petition was filed.