## Facts

- A single-asset real estate debtor owned a mixed retail/office property in Fort Worth, Texas, financed by secured promissory notes totaling about $32.1 million at filing.
- After the notes matured and forbearance periods ended, the lender sold the defaulted notes to a distressed-debt investor that promptly scheduled a nonjudicial foreclosure.
- The debtor filed a Chapter 11 petition the day before the foreclosure sale, triggering the automatic stay.
- The debtor also owed about $59,000 in unsecured trade debt to 38 creditors.
- The bankruptcy court valued the property at $34 million, exceeding the secured debt and leaving an equity cushion.
- The creditor sought stay relief and dismissal, arguing the debtor lacked any realistic prospect of confirming a plan; the bankruptcy court denied that relief.
- The debtor proposed a plan (as modified and confirmed) with two impaired voting classes:
  - The secured creditor would receive a new five-year note at 5.84% interest with a balloon payment at maturity.
  - Unsecured trade creditors would be paid in full within three months after the plan’s effective date, without post-petition interest.
- Although the debtor had enough cash to pay the trade creditors at confirmation, it delayed payment and omitted interest, and the secured creditor argued this was done solely to create an accepting impaired class.

## Issues

1. Whether acceptance by a class that is “artificially” (minimally and strategically) impaired can satisfy 11 U.S.C. § 1129(a)(10)’s requirement that at least one impaired class accept the plan.
2. Whether the plan failed the good-faith requirement of 11 U.S.C. § 1129(a)(3) because the debtor intentionally created minimal impairment to obtain cramdown confirmation.

## Decision

- The Fifth Circuit affirmed the confirmation order.
- Section 1129(a)(10) does not distinguish between “artificial” and “economic” impairment; a class is impaired if its rights are altered under § 1124.
- The unsecured trade-creditor class was impaired because payment was delayed and post-petition interest was not provided.
- Artificial impairment was not, by itself, proof of bad faith; the bankruptcy court did not clearly err in finding the plan proposed in good faith based on the record as a whole.

## Legal Principles

- Under 11 U.S.C. § 1124, a class is impaired unless the plan leaves unaltered the class’s legal, equitable, and contractual rights; the statute contains no materiality or economic-necessity requirement.
- An accepting class that is impaired within the meaning of § 1124 satisfies § 1129(a)(10), even if the impairment is slight and could have been avoided.
- Alleged manipulation through minimal impairment is evaluated primarily under § 1129(a)(3)’s good-faith inquiry, assessed under the totality of circumstances rather than by importing motive-based limits into § 1129(a)(10).
- A debtor’s intent to obtain cramdown confirmation is not inherently improper; the question is whether the plan serves a legitimate reorganization purpose and is fundamentally fair in context.

## Conclusion

The Fifth Circuit upheld confirmation of a Chapter 11 plan over the secured creditor’s objection, holding that any alteration of creditor rights constitutes impairment for § 1129(a)(10) and that minimal, strategic impairment does not automatically defeat good faith under § 1129(a)(3).


In re Village at Camp Bowie I, L.P., 710 F.3d 239 (5th Cir. 2013)