- Court: United States Supreme Court
- Area(s) of Law: Bankruptcy Law
- Date Filed: March 22, 2017
- Case #: 15-649
- Judge(s)/Court Below: Breyer, J., delivered the opinion of the Court, in which Roberts, C. J., and Kennedy, Ginsburg, Sotomayor, and Kagan, JJ., joined. Thomas, J. filed a dissenting opinion, in which Alito, J., joined.
- Full Text Opinion
Respondent filed for Chapter 11 bankruptcy. The Bankruptcy Court dismissed the bankruptcy and ordered a distribution of the estate’s assets. In doing so, the court gave money to high-priority secured creditors and to low-priority unsecured creditors, but skipped Petitioners and other mid-priority creditors. Chapter 11 of the Bankruptcy Code allows debtors and creditors to negotiate a plan to divide the estate’s value. If the parties do not agree on a plan, then the bankruptcy court may dismiss the case and the Code provides for a restoration of the pre-petition status quo. However, sometimes a perfect restoration of the status quo may be difficult or impossible. In that case, the Code permits the bankruptcy court to alter a Chapter 11 dismissal’s ordinary consequences for cause. This type of dismissal is called a structured dismissal. The Code also provides a basic system of priority, which governs the order that the bankruptcy court will distribute assets of the estate. However, the Code does not provide what priority rules apply in a structured dismissal. The Supreme Court held that the bankruptcy court must follow ordinary priority rules in a structured dismissal. The Bankruptcy Court did not follow ordinary priority rules when it skipped Petitioners who had mid-level priority claims. The Supreme Court explained that there is nothing in the Code which evidences an intent to make priority rules different in a structured dismissal. The Code’s rules seek to protect procedural safeguards. REVERSED and REMANDED.