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Bankr. E.D.N.C.: In re Bath Bridgewater South, L.L.C.- Dirt for Debt Plans

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By Ed Boltz, 21 March, 2013
Summary: In a “vigorously litigated case”, the Debtor proposed to surrender certain parcels of real property to satisfy the claim of Capital Bank, i.e. “Dirt for Debt”. Based on the valuations of the real property at issue, the bankruptcy court held that those properties had sufficient value to fully satisfy the claim of Capital Bank, leaving it with no unsecured deficiency claim. Capital Bank nonetheless contended that it should not be subject to cram-down under 11 U.S.C. § 1129. The bankruptcy court found that the plan was feasible and rejected Capital Bank’s contention that a ‘dirt for debt” plan is can never be filed in good faith or meet the best interest of creditors test. SunTrust Bank v. Bannerman Holdings, LLC (In re Bannerman Holdings, LLC), Case No. 7:11-CV-00009-H, 2011 U.S. Dist. LEXIS 153502 (E.D.N.C. Sep. 30, 2011). Using a conservative valuation to give Capital Bank its “indubitable equivalent” in real property, the bankruptcy court set the values for such parcels and allowed the Debtor to choose which to surrender or retain. The bankruptcy court did, however, find that the Debtor’s plan was not “fair and equitable”, since it provided for negative amortization of a claim held by Capital Bank. See In re Northern Outer Banks Associates, LLC, 2010 Bankr. LEXIS 3974, at *8-11, 2010 WL 4630348, at *25-34 (Bankr. E.D.N.C. Nov. 8, 2010), but did allow the debtor time to propose a new plan, remedying this defect. For a copy of the opinion, please see: Bath Bridgewater South, L.L.C.- Dirt for Debt Plans.pdf

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