In In re Juarez, 603 B.R. 610 (9th Cir. BAP 2019), the Bankruptcy Appellate Panel of the U.S. Court of Appeals for the Ninth Circuit addressed a question of first impression in the circuit with respect to property that is exempt from creditor reach: it adopted the view that, under the “new value exception” to the “absolute priority rule,” an individual Chapter 11 debtor intending to retain such property need not make a “new value” contribution covering the value of the exemption.

Background

Before filing his Chapter 11 petition in June 2017, Ubaldo Juarez borrowed $200,000 from Edgar Todeschi and Georgina Ponce in 2011. Todeschi and Ponce subsequently sued Juarez in Arizona state court in 2014 for breach of contract, breach of good faith and fair dealing, unjust enrichment, negligent misrepresentation, fraud, and constructive trust.  Juarez thereafter filed his Chapter 11 petition due in part to the expenses incurred from this litigation. Todeschi and Ponce filed a proof of claim in the Chapter 11 case in the amount of $261,390.40, to which Juarez did not object.