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the historic precedents demonstrates the contribution should exceed the new capital being contributed.451 The nature of the interest retained must be determined in order to value that interest.452 The ownership right itself has value, even for an insolvent sole proprietorship,453 or an individual retaining exempt assets.454 Therefore, the plan proponent may not rest on the argument that any new value is more than the value of owning the insolvent debtor.455
The requirement is difficult for individual debtors to meet. All property of the debtor is considered in determining the value of the retained interest. A promise to contribute the debtor's exempt property does not suffice, as the value of the exempt property is already included. A promise to contribute payments from post-petition earnings is neither present
be based on a contribution in money or in money's worth, reasonably equivalent in view of all the circumstances to the participation of the stockholder." 308 U.S. at 122, 60 S. Ct. at 10. In One Times Square Assocs. Ltd. Partnership, 159 B.R. at 708, aff'd, 165 B.R. 773 (S.D.N.Y.), aff'd, 41 F.3d 1502 (2d Cir. 1994) (table), cert. denied, 1995 WL 67238 (1995), the bankruptcy court rejected new value of about $1.5 million on confirmation, and $2.4 million over time, as "not proportionate to the interests" which the partners would retain under the plan. The court's concern focussed on the disparity between the contribution and the $19 million property value, where the partners would benefit from any upside over the secured claim. In Creekside Landing, 140 B.R. at 717-19, the bankruptcy court held that a $250,000 contribution in the form of $150,000 cash and $100,000 in notes due in one year did not meet the exception where the property's cash flow exceeded $460,000 per year, and the new money was basically being used to pay claims of insiders or creditors whose claims were also personal obligations of the equity holders. In fact, the general partners would receive more in cash immediately under the plan for their claim than they would contribute to retain their equity.
451 R. Haines, "Recent Developments in Chapter 11," NORTON ANNUAL SURVEY OF BANKRUPTCY LAW (Clark Boardman Callaghan, 1995 ed.)
452 The plan proponent must prove the value of the retained interest. In re Maropa Marine Sales Serv. and Storage, Inc., 90 B.R. 544, 545-46 (Bankr. S.D. Fla. 1988) (debtor failed to prove new contribution was worth less than retained interest).
453 Unruh v. Rushville State Bank, 987 F.2d at 1509. The Supreme Court in Ahlers found the ownership rights in a debtor were valuable in addition to the market value of the debtor's property. 485 U.S. at 207-08, 108 S. Ct. at 969. For this reason, a plan provision which does not allow any payment to equity until creditors are fully paid still violates the absolute priority rule. See In re Cantonwood Associates Ltd. Partnership, 138 B.R. 648, 658 (Bankr. D. Mass. 1992). Many courts' hostility to the new value principle in the case of individual debtors is exemplified by In re Cipparone, 175 B.R. 643 (Bankr. D. Mich. 1994) (debtors themselves may not be source of new value contribution); see also In re East, 57 B.R. 14 (Bankr. M.D. La. 1985); In re Yasparro, 100 B.R. 91 (Bankr. M.D. Fla. 1989); In re Harman, 141 B.R. 878 (Bankr. E.D. Pa. 1992) (new value principle applies little, if at all, to consumer debtors). Compare In re Egan, 142 B.R. 730 (Bankr. E.D. Pa. 1992) (where individual debtors retained only their exempt property, they did not retain any interest in violation of the absolute priority rule).
454 See In re Johnson, 101 B.R. 307 (Bankr. M.D. Fla. 1989); Yasparro, 100 B.R. at 95-6.
455 S.A.B.T.C. Townhouse Ass'n, 152 B.R. at 1011. The members in the townhouse association wanted to retain the benefit of common ownership of common areas with a "value in use" of $724,000 by paying $30,000 collected from prior assessments. The court quickly found that these contributions
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