628 B.R. 9
Bankr. E.D. Pa.2021Background
- Debtor Stephen T. Walker filed a Subchapter V Chapter 11 on Sept. 1, 2020 and proposed a 3‑year plan funded by sale of one Main Line property (Gladwyne) and his projected income from new employment with Aegis (including forgivable loans).
- Debtor owns two Main Line properties (combined value ≈ $2.7M) with aggregate liens exceeding value; Morgan Stanley holds a large judgment lien (~$1.8M). Schades filed a proof of claim (~$315k) asserting an equitable lien; Debtor disputes that lien.
- General unsecured claims (including undersecured portion of Morgan Stanley and a large claim by Debtor’s estranged spouse, Dorothy Walker) likely exceed $2M; plan projects ~$159,500 distributable to general unsecured creditors (~7.5% recovery).
- Plan provides to retain Bryn Mawr residence (projected household expense $16,000/month), cure certain mortgage delinquencies, sell Gladwyne to pay mortgages and reduce Morgan Stanley’s secured claim.
- Voting: secured classes accepted; unsecured class accepted the plan (claimants holding 84.6% of voting unsecured claims accepted). The Schades voted to reject and limited their confirmation objection to lack of good faith under 11 U.S.C. §1129(a)(3).
- Schades argue Debtor is preserving an unduly luxurious lifestyle and should extend plan to 5 years or otherwise devote more resources; Debtor contends he has understated disposable‑income pressures and voluntarily supplemented the plan (post‑petition income ≈ $60k plus ~$110k via tax‑escrow assumptions) and that the plan meets/substantially exceeds applicable baselines.
Issues
| Issue | Plaintiff's Argument (Schades) | Defendant's Argument (Walker) | Held |
|---|---|---|---|
| Whether the plan was proposed in good faith under 11 U.S.C. §1129(a)(3) | Plan is not in good faith because Debtor retains expensive residence and lifestyle, reducing creditor recovery; Debtor must make best efforts to repay (should extend to 5 years) | Plan is proposed in good faith: expenses are not as high as claimed; Debtor adds voluntary supplements (post‑petition income and adjusted tax escrow) and plan funds exceed statutory baseline | Court: Overrules objection; plan satisfies §1129(a)(3). Good‑faith inquiry is narrow, looks to totality of circumstances, and creditor acceptance carries great weight. |
| Whether a court may deny confirmation for lack of good faith when affected creditor classes accepted the plan | Schades urge stricter review despite creditor acceptance | Debtor argues creditor acceptance should be dispositive | Court: Creditor vote is significant but not dispositive; nevertheless, narrow application of §1129(a)(3) means courts should be circumspect about overruling voting creditors absent egregious unfairness; here confirmation allowed. |
Key Cases Cited
- In re Am. Cap. Equip., LLC, 688 F.3d 145 (3d Cir. 2012) (good‑faith inquiry focuses on the plan and whether it furthers Bankruptcy Code objectives)
- In re Tamecki, 229 F.3d 205 (3d Cir. 2000) (good faith requirement for filing and confirmation is narrow)
- In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (good faith as an implied requirement in chapter 11 filings)
- In re Zick, 931 F.2d 1124 (6th Cir. 1991) (denial of relief for lack of good faith is reserved for egregious cases)
- Educ. Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987) (narrow focus of good‑faith inquiry in consumer bankruptcy contexts)
- In re Weber, 209 B.R. 793 (Bankr. D. Mass. 1997) (example of denying confirmation on §1129(a)(3) grounds despite creditors’ positions)