On May 4, 2015, the Supreme Court issued its opinion in Bullard v. Blue Hills Bank, holding that an order denying confirmation of the debtor’s proposed chapter 13 plan is not a “final” order that the debtor can immediately appeal. This holding could have a far-reaching impact on individual and corporate debtors in both chapter 11 and chapter 13 by in most instances eliminating their second bite at the apple in seeking confirmation of a plan. As a consequence, debtors’ attorneys may be less inclined to put forward more aggressive plan terms that run a risk of the bankruptcy court denying confirmation.

Bullard filed a voluntary petition under chapter 13 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Massachusetts. Bullard filed a proposed plan proposing to pay over a five-year term a portion of certain claims he anticipated would be filed. With respect to Blue Hills Bank, which held a mortgage on Bullard’s residence, his plan proposed to split the debt into a secured claim equal to Bullard’s stated value of his residence with the remainder of the bank’s claim treated as unsecured. Under the plan, Bullard would pay the secured claim from his regular mortgage payments and would pay only a portion of the unsecured claim, discharging the unsecured claim in five years after completion of his plan. Blue Hills Bank objected to its treatment under the plan and the bankruptcy agreed, holding that Bullard could only split his claim as stated in the plan if the plan proposed to pay the secured claim in full during the five-year plan term.

Bullard appealed to the First Circuit BAP, which held that the order denying confirmation was not a final order. The BAP nevertheless retained the appeal, deciding to exercise the provision to hear interlocutory appeals “with leave of the court” under 11 U.S.C. § 158(a)(3). The BAP granted leave for Bullard to appeal the interlocutory order because the appeal involved a controlling question of law. The BAP ultimately agreed with the bankruptcy court that Bullard’s proposed treatment of Blue Hill Bank’s claim was not permitted. Bullard then appealed to the First Circuit Court of Appeals, which held that, because the BAP did not certify the appeal under 11 U.S.C. § 158(d)(2), the only possible source of jurisdiction for the First Circuit was 11 U.S.C. § 158(d)(1), under which only appeals from final order could be considered. Because First Circuit law was clear that an appellate decision from the BAP is only final if the underlying bankruptcy court order was final, the First Circuit concluded it did not have jurisdiction to consider the appeal since a bankruptcy court order denying confirmation was not final so long as the debtor was free to propose another plan.

The Supreme Court observed that a decision is final if it finally disposes of “discrete disputes within the larger case.” Howard Delivery Service, Inc. v. Zurich American Ins. Co., 547 U.S. 651, 657 n.3 (2006). Bullard argued that the Court should look at the proceedings by a plan-by-plan approach. Under Bullard’s view, any decision granting or denying plan confirmation would be a final disposal of that plan, and therefore such decision would be final for purposes of appeal. Blue Hills Bank argued that the entire process of considering plans in a bankruptcy case is one “proceeding” that is finally disposed when confirmation is granted or – if no plan is confirmed – when the case is dismissed. The Supreme Court adopted the Bank’s view, finding that only plan confirmation or case dismissal “alters the status quo and fixes the rights and obligations of the parties.” Where plan confirmation is denied but the case is not dismissed, the parties’ rights and obligations remain the same and the debtor can propose another plan for confirmation. As Chief Justice Roberts observed: “It ain’t over till it’s over.”

While Bullard argued that he should be able to appeal the denial and revise his plan only if the decision is affirmed, the Supreme Court observed that the appellate process could take one year or longer. But the process would not end with and affirming decision. The debtor would then revise his plan, propose it and, if denied again, start the appellate process over. This would result in extreme inefficiencies in the bankruptcy process and is precisely the reason why parties have an automatic right to appeal only final orders. And the parties will always have the right to seek leave to appeal the denial order as an interlocutory order.

The Court’s decision is important because it ostensibly applies not only to chapter 13 cases but to chapter 11 cases as well since 11 U.S.C. § 158 governs the right to appeal under decisions rendered in cases pending under either chapter of the Bankruptcy Code. If a chapter 11 debtor proposed a plan and confirmation of the plan was denied, it would need to seek leave to appeal the order as interlocutory, which may or may not be granted. The debtor would then run the risk of deteriorating circumstances while it pursued appeal of the confirmation denial.

One issue not addressed by the Supreme Court in this opinion is what effect (if any) the grant of stay relief to a creditor impacts the finality of an order denying plan confirmation. In fact, the Court’s opinion observed that, when confirmation is denied, the automatic stay persists. The Court pointed to this fact as a reason why a denial of plan confirmation did little to change the status quo or alter the rights of the parties. It will be interesting to see whether appellate courts will find they have jurisdiction over appeals of orders denying plan confirmation where a creditor has obtained relief from the automatic stay to enforce its rights and remedies in property of the estate.