KEY POINTS | U.S. COURT OF APPEALS FOR THE ELEVENTH CIRCUIT AFFIRMS DECISION

Updated: Mar 20

The Eleventh Circuit recently affirmed a decision by the bankruptcy court which rejected a debtor’s reorganization plan under Chapter 11 of the bankruptcy code because the plan sought to modify secured debt in violation of the anti-modification provision contained in 11 U.S.C. § 1123(b)(5). Lee v. U.S. Bank Nat’l Ass’n, No. 21-13887, 2024 WL 2349896, at *1 (11th Cir. May 23, 2024).
The Eleventh Circuit conducted a detailed analysis of § 1123(b)(5) and determined the provision applied if the following three requirements were met: (1) “the security interest must be in real property;” (2) “the real property must be the only security for the debt;” and (3) “the real property must be the debtor’s principal residence.” The Court concluded the bank’s security interest satisfied each of these requirements.
The Court rejected the debtor’s argument that the debt was not secured by Lee’s principal residence. The debtor reasoned that because the real property was primarily used for commercial farming and only a small portion of the real property was used for Lee’s principal residence the bank failed to satisfy the third element of § 1123(b)(5). The Court held the plain language of the provision did not require the real property to be used exclusively as a principal residence. The Court affirmed the bankruptcy order and lifted the bankruptcy stay.