Author: Spiros Avramidis
The Second Circuit held that a confirmed Chapter 11 plan can extinguish a lien if "(1) the text of the plan does not preserve the lien; (2) the plan is confirmed; (3) the property subject to the lien is 'dealt with' by the terms of the plan; and (4) the lienholder participated in the bankruptcy proceedings." In re Northern New England Telephone Operations LLC, 795 F.3d 343, 345 (2d Cir. 2015).
To some, this holding may seem contrary to the general rule that "liens pass through bankruptcy unaffected." Dewsnup v. Timm, 502 U.S. 410, 417 (1992). However, the Court found a caveat to this general rule in 11 U.S.C. § 1141(c), which states: "[e]xcept as provided in subsections (d)(2) and (d)(3) of this section and except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor."
The Second Circuit held that a confirmed Chapter 11 plan can extinguish a lien if "(1) the text of the plan does not preserve the lien; (2) the plan is confirmed; (3) the property subject to the lien is 'dealt with' by the terms of the plan; and (4) the lienholder participated in the bankruptcy proceedings." In re Northern New England Telephone Operations LLC, 795 F.3d 343, 345 (2d Cir. 2015).
To some, this holding may seem contrary to the general rule that "liens pass through bankruptcy unaffected." Dewsnup v. Timm, 502 U.S. 410, 417 (1992). However, the Court found a caveat to this general rule in 11 U.S.C. § 1141(c), which states: "[e]xcept as provided in subsections (d)(2) and (d)(3) of this section and except as otherwise provided in the plan or in the order confirming the plan, after confirmation of a plan, the property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor."
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