The Res Judicata Worth of Illegal Bankruptcy Reorganization Plans

Abstract

Every reorganization chapter in the Bankruptcy Code contains a statement that confirmed plans are binding on the debtor and its creditors. Yet the procedure in bankruptcy reorganization cases is so chaotic that courts often confirm plans that are illegal. Where the creditor does not appeal the confirmation order, the plan should have res judicata worth against the creditor. Yet courts have found many reasons why they should not follow the "plain meaning" of the Bankruptcy Code. This article surveys the large number of reasons courts have found to subvert the rule that confirmed plans are binding. In particular, it examines whether violations of the Federal Rules of Bankruptcy Procedure are violations of the Due Process Clause of the Fifth Amendment.

Keywords: Bankruptcy, Chapter 11, Chapter 13, Revocability, Debtor, Creditor, Caim Peclusion, Reorganization