# Penny Jo Hamilton-Gaertner

> United States Bankruptcy Court, E.D. North Carolina · May 1, 2019

URL: https://www.frixlaw.com/law-library/cases/10459156

## Case

- **Court:** United States Bankruptcy Court, E.D. North Carolina
- **Decided:** May 1, 2019
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

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- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/10459156

## How later opinions describe it (automated extraction)

- finding confirmation of a debtor-in-possession’s Chapter 11 plan of reorganization a core proceeding

## Opinion text

SO ORDERED. Ne sills Bees
Oui
SIGNED this 1 day of May, 2019.

David M. Warren
United States Bankruptcy Judge

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE: CASE NO. 17-00271-5-DMW
PENNY JO HAMILTON-GAERTNER
CHAPTER 11
DEBTOR
MEMORANDUM OPINION REGARDING CONFIRMATION OF PLAN
This matter comes before the court upon the Third Amended Plan of Reorganization
(“Third Amended Plan”) filed by Penny Jo Hamilton-Gaertner (“Debtor”) on March 23, 2018 and
the Objection thereto filed by Ascentium Capital LLC (“Ascentium’’) on May 1, 2018. The court
conducted a hearing on May 10, 2018 in Raleigh, North Carolina. Clayton W. Cheek, Esq.
appeared for the Debtor, Samuel D. Fleder, Esq. appeared for Ascentium, Gregory P. Chocklett,
Esq. appeared for Direct Capital Corporation (“DCC”), and Brian C. Behr, Esq. appeared on behalf
of the United States Bankruptcy Administrator (“BA”). Based upon the evidence presented and
arguments of counsel, the court confirmed the Third Amended Plan pursuant to 11 U.S.C.
§ 1129(a) and entered an Order Confirming Plan (‘Confirmation Order’) on June 22, 2018. This
opinion sets forth the court’s findings of fact and conclusions of law in support of the Confirmation
Order pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, made applicable by Rules
7052 and 9014(c) of the Federal Rules of Bankruptcy Procedure.

I. JURISDICTION
This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) which the court has
the authority to hear and determine pursuant to 28 U.S.C. § 157(b)(1). See In re Cheatham, 78
B.R. 104, 106 (Bankr. E.D.N.C. 1987) (finding confirmation of a debtor-in-possession’s Chapter
11 plan of reorganization a core proceeding). The court has subject matter jurisdiction pursuant

to 28 U.S.C. §§ 157(a) and 1334 and the General Order of Reference entered on August 3, 1984
by the United States District Court for the Eastern District of North Carolina.
II. FACTS AND BACKGROUND
A. The Debtor and Family
The Debtor is a 54-year-old emergency room physician who is employed by Wake
Emergency Physicians, PA (“WEPPA”) and WakeMed Hospital (“WakeMed”). She is married
and has three teenaged children. The Debtor’s family lives in a home owned by her and her
husband as tenants by the entirety. They also own as tenants by the entirety two Disney vacation
condominium timeshares. The Debtor and her husband own three vehicles. All three of the

Debtor’s children attend private schools, with the eldest child matriculating to college in 2018.
The middle child is at a specialized school to address her unique educational and emotional needs
resulting from a diagnosed disability, and the other two attend parochial schools.1
B. Sculpt MedSpa, PLLC
The Debtor formed Sculpt MedSpa, PLLC (“Sculpt MedSpa”) in December 2014 to
provide therapeutic and cosmetic medical treatments such as laser therapies and resurfacing, laser
hair removal, tattoo removal, and robotic hair transplant. The Debtor was originally partnered
with another doctor to open Sculpt MedSpa; however, that partner withdrew early in the process

1 Since the hearing in this matter, the eldest child graduated from the parochial high school and enrolled in college.
for personal reasons. Sculpt MedSpa financed its startup and equipment costs through loans and
leases from four different creditors, including Ascentium, DCC, and Pawnee Leasing Corporation
(“Pawnee”). The loans were secured by medical equipment, and the Debtor personally guaranteed
payment of each of these loans and leases.
Sculpt MedSpa struggled from inception and went out of business in the summer of 2016,

approximately 16 months after opening. Sculpt MedSpa began surrendering collateral equipment,
and each of its creditors filed suit against it and the Debtor in the Wake County Superior Court
(“State Court”) for recovery of outstanding indebtedness. On October 20, 2016, the State Court
entered a Summary Judgment in favor of Ascentium for $186,710.07 plus applicable interest and
costs, and on November 8, 2016, the State Court entered an Order for Summary Judgment in favor
of DCC for $282,099.98 plus applicable interest and costs.
C. The Debtor’s Bankruptcy
To reorganize and pay her debts resulting from Sculpt MedSpa, the Debtor filed a voluntary
petition for relief under Chapter 11 of the United States Bankruptcy Code2 on January 18, 2017.

As part of the petition, the Debtor characterized her debts as primarily business debts which were
incurred to obtain money for a business or investment or through the operation of the business or
investment. She scheduled assets totaling $901,496.45 which are summarized as follows:
Residence (1/2 interest) $ 475,000.00
Disney Timeshares (1/2 interest) 56,000.00
2014 Jeep Cherokee 18,711.00
2008 Toyota Sequoia (1/2 interest) 7,250.00
Petrof Piano 15,000.00
Other Personal and Household Items 10,850.00
401k Account 318,249.66
Other Financial Accounts 435.79
Total Scheduled Assets $ 901,496.45

2 Except for within formal citations, references to the Bankruptcy Code, 11 U.S.C. § 101 et seq., will be by section
number only.
The Debtor claimed exemptions in most of these assets, most notably in her residence and the
Disney timeshares pursuant to § 522(b)(3)(B) and the law of the State of North Carolina pertaining
to property held as tenants by the entirety3 and in her 401k account pursuant to § 522(b)(3)(C) and
N.G. Gen Stat. § 1C-1601(a)(9).
The Debtor scheduled liabilities totaling $2,338,039.69 which are summarized as follows:

Secured Debt:
Residential Mortgages $ 841,327.44
Disney Timeshare Mortgages 62,653.00
Automobile Loans 46,714.73
Unsecured Debt:
Student Loans 288,838.00
Ascentium 201,358.69
DCC 285,624.30
Pawnee 65,777.24
Unsecured Joint Debt with Husband 57,960.81
Unsecured Individual Debt 487,785.48
Total Scheduled Liabilities $ 2,338.039.69

The Debtor’s amended Schedule I reports net monthly income from her employment with
WEPPA of $41,655.97 coupled with her husband’s net monthly income of $3,489.98 for a total
combined net monthly income of $45,145.95. Her amended Schedule J details monthly expenses
totaling $31,617.13, including residential mortgage and expenses totaling $7,226.05, educational
expenses of $4,818.64, car payments totaling $1,466.81, and timeshare mortgage and expenses
totaling $1,624.84.
In her Disclosure Statement filed with the court on May 18, 2017, the Debtor updated her
listings of assets and liabilities based in part upon claims filed in the case. She included a
liquidation analysis that projected that in a Chapter 7 case, joint unsecured creditors would be paid

3 The judgments against the Debtor in favor of Ascentium and DCC could not attach to the tenants by the entirety
properties, but even if so, the attachments would likely be avoidable as preferential transfers under § 547(b), because
the petition date is exactly 90 days after the State Court’s entry of judgment in favor of Ascentium and within 90 days
of the State Court’s entry of judgment in favor of DCC.
in full from equity in the tenants by the entirety properties but that only $115,210.00 would be
available to apply toward her individual unsecured obligations of approximately $1,433,528.85,
equating to an 8% distribution.
D. The Plans
The Third Amended Plan before the court is the fourth plan of reorganization proposed by

the Debtor, evolving over several months which included negotiations with Ascentium and DCC
and the court’s rejection of a plan agreed to by these creditors. The Debtor’s initial Plan of
Reorganization (“Original Plan”) provided, inter alia, for payment on the residential and Disney
timeshare mortgages allowed as fully secured claims, payment in full to joint unsecured creditors
from an anticipated tax refund, and a distribution of approximately 17.5% to the individual
unsecured creditors, including Ascentium and DCC, over a period of over 20 years. Ascentium
and DCC filed a joint objection to the Original Plan, questioning the Debtor’s good faith in paying
less than 20% to unsecured creditors while continuing to maintain what they dubbed a “luxurious
lifestyle” of paying housing and transportation costs that exceed the local Internal Revenue Service

standards, two vacation timeshares, and private school education. Additionally, these creditors
disputed that the Debtor was contributing all her projected disposable income as required in light
of their objections pursuant to § 1129(a)(15). Finally, Ascentium and DCC opposed the
preferential treatment given to the separate class of joint unsecured creditors. The BA filed a
statement essentially echoing the concerns of Ascentium and DCC, and other creditors filed their
own objections.
In response to the widespread opposition to the Original Plan, the Debtor sought and
obtained extensions of the exclusivity and acceptance periods and filed two amended plans of
reorganization. On March 6, 2018, the court conducted a hearing on the Debtor’s Second
Amended Plan of Reorganization (“Second Amended Plan”). The Debtor reported that all classes
of creditors had accepted the Second Amended Plan, including a newly created class that consisted
solely of Ascentium and DCC and was designated as “Judgment Creditors.” Both these Judgment
Creditors voted to accept the Second Amended Plan, which proposed to pay their claims in full
over a period of ten years with interest accruing at 4% per annum. The class of individual

unsecured creditors, which now excluded the Judgment Creditors, would also be paid in full but
over a 20-year period and with a lower interest rate of 1.25% interest per annum.
Despite full acceptance of the Second Amended Plan, the court viewed the discriminating
treatment between the Judgment Creditors and the individual unsecured creditors as unjustified.
Additionally, the court did not believe that payment to the individual unsecured creditors over 20
years, extending into the Debtor’s mid-70s, was feasible. The court declined to confirm the Second
Amended Plan and indicated that it would only consider a plan that paid unsecured creditors within
a feasibly reasonable time, even if that meant paying these creditors less than the full amount of
their claims.

The Third Amended Plan returns the Judgment Creditors to the individual unsecured class
of creditors and proposes a 70% distribution to this class over a nine-year period, with interest of
1.25% per annum. Based upon the liquidation analysis, the separate class of joint unsecured
creditors continues to receive 100% distribution to be paid over 20 years at 1.25% per annum, with
the Debtor and her husband reserving the right to accelerate payments. Ascentium filed its
Objection and voted to reject the Third Amended Plan; however, the majority of voting unsecured
creditors, including DCC, accepted the Third Amended Plan for the class. All other designated
classes of creditors also accepted the Third Amended Plan.
E. Financial Projections
At the hearing on confirmation of the Third Amended Plan, the Debtor presented a pro
forma analysis of projected income and expenses through 2022. The Debtor anticipates earning
between $400,000.00 and $405,000.00 annually in salary and bonuses from WEPPA and
WakeMed. Her husband’s annual salary is $41,880.00. From their combined income, the Debtor

projects payment of the following annualized expenses:
Utilities $ 31,200.00
Insurance (car, real property, health, life) 12,600.00
Food 21,000.00
Medical/Dental 4,200.00
Personal Care 2,400.00
Transportation 12,000.00
Clothing 3,000.00
Gifts and Donations 1,800.00
Entertainment 3,000.00
Household Supplies 6,000.00
House/Lawn Maintenance 9,600.00
Other Expenses (extracurriculars) 12,000.00
Schooling 34,288.30
Property Taxes 5,500.00
Husband’s Expenses 38,642.55
Total Expenses $ 197,230.85

After payment of these expenses, the Debtor’s remaining income would be devoted to payments
under the Third Amended Plan which total approximately $208,000.00 annually, including
$95,717.52 to the individual unsecured creditors. The Debtor represented that payment of the
Disney timeshare mortgages, while being treated under the Third Amended Plan, would be paid
by her husband and not from her income.
III. DISCUSSION
Section 1129(a) sets forth 16 requirements for confirmation of a Chapter 11 plan, and a
debtor must show that all these requirements have been met before confirmation will issue. Fed.
Land Bank of Columbia v. Cheatham (In re Cheatham), 91 B.R. 377, 379 (E.D.N.C. 1988). “Even
in the absence of creditor objections, the court has an independent duty to determine that the
confirmation requirements of 11 U.S.C. § 1129 are met and the duty to ascertain the debtor’s ‘good
faith.’” In re Landscaping Servs., Inc., 39 B.R. 588, 590 (Bankr. E.D.N.C. 1984) (citing In re
Economy Cast Stone Co., 16 B.R. 647 (Bankr. E.D. Va. 1981)).
A confirmation analysis begins appropriately with § 1129(a)(8), which dictates that each

class of claims has either accepted the plan or is not impaired under the proposed plan. If
§ 1129(a)(8) is not satisfied, then a plan is nonetheless confirmable pursuant to a “cramdown” if
all other requirements of § 1129(a) are met and the court finds that “the plan does not discriminate
unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired
under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1). The Debtor’s Ballot Report reflects
that each of the Plan’s eight classes has accepted the Plan, thereby satisfying § 1129(a)(8). The
parties concede, and the court finds easily without the need for discussion, that the Debtor has also
satisfied as applicable §§ 1129(a)(1), (2), (4), (5), (6), (7), (9), (10), (12), (13), (14), and (16).
Ascentium’s Objection challenges predominantly whether the Plan has met the good faith

requirement of § 1129(a)(3), the feasibility requirement of § 1129(a)(11), and the disposable
income requirement of § 1129(a)(15)(B).
A. Section 1129(a)(3)
Section 1129(a)(3) requires that “[t]he plan has been proposed in good faith and not by any
means forbidden by law.” 11 U.S.C. § 1129(a)(3). As recently observed by this court—
[a]lthough the term “good faith” is not defined by the Code, courts have generally
interpreted it to mean there is a “‘reasonable likelihood that the plan will achieve a
result consistent with the objectives and purposes of the Bankruptcy Code.’” In re
Madison Hotel Assocs., 749 F.2d 410, 425 (7th Cir. 1984) (quoting In re Nite Lite
Inns, 17 B.R. 367, 370 (Bankr. S.D. Cal. 1982)). In addition, the Fifth Circuit has
held that “[w]here the plan is proposed with the legitimate and honest purpose to
reorganize and has a reasonable hope of success, the good faith requirement of
section 1129(a)(3) is satisfied.” Heartland Fed. Sav. & Loan Ass’n v. Briscoe
Enters., Ltd., II (In re Briscoe Enters., Ltd., II), 994 F.2d 1160, 1167 (5th Cir. 1993).
When conducting a good faith inquiry, a court must view the plan in light of the
totality of the circumstances surrounding the proposal of the plan. In re Piece
Goods Shops Co., L.P., 188 B.R. 778, 790 (Bankr. M.D.N.C. 1995).

In re Bate Land & Timber, LLC, 523 B.R. 483, 492-93 (Bankr. E.D.N.C. 2015). Ascentium argues
that the Debtor’s expenses are excessive and unnecessary and support a lifestyle that should not
be maintained to the detriment of her unsecured creditors who are being paid less than the full
amount of their claims. In support of this position, Ascentium cites a string of cases which find
expenses such as private school tuition, maintaining a vacation home, and repayment of pension
loans to be unreasonable and unnecessary and indicative of a lack of good faith, most notably this
court’s decision in In re Osborne, No. 12-00230-8-SWH, 2013 WL 2385136 (Bankr. E.D.N.C.
May 30, 2013).
In Osborne, the debtors had approximately $140,000.00 in cash and projected a healthy
annual gross income of between $200,000.00 and $300,000.00. Their monthly budget included
residential mortgage and costs of almost $5,000.00, beach property mortgage and expenses of
approximately $3,750.00, automobile loan and other transportation costs exceeding $1,300.00,
household and recreation expenses of almost $1,500.00, and private school tuition of $1,450.00.
The debtors proposed to pay over five years a total of $20,000.00 toward the general unsecured
claims that totaled over $500,000.00, a distribution of less than 4%. The court found that—
based on the debtors’ massive $140,000 “war chest,” extremely high income,
retention of substantial assets, and their spending habits, a proposed distribution of
$20,000 over the course of five years is not indicative of a good faith desire to repay
creditors. Instead, it is somewhat like tossing the unsecured creditors a bit of spare
change. . . . In this case, the male debtor has reached a level of income that many
people will never attain, even in dual income households. At the same time, the
debtors maintain significant financial obligations, including a spacious primary
home and exclusive vacation home, as well as a luxury vehicle and private
schooling for their son. And, as clearly shown in the monthly reports and
testimony, the debtors spend significant amounts of money on food, clothing, and
recreation. A plan that allows the debtors to maintain such a high cost lifestyle,
while paying only $20,000.00 to unsecured creditors and retaining $140,000.00 in
the bank, certainly cannot be consistent with the purposes and objectives of the
Bankruptcy Code. While the Code confers many benefits to debtors, continued
maintenance of an extravagant lifestyle surely was not intended to be one of them.

Id. at *9. While instructive, Osborne presents facts and circumstances quite different from this
case. The court does not condone debtors living extravagantly and agrees that the Debtor’s
expenses exceed what is required to maintain comfortable lifestyle; however, based upon the
Debtor’s testimony and the totality of circumstances surrounding this case, the court cannot find
that the Third Amended Plan is proposed in bad faith.
The expenses of which Ascentium complains did not contribute to the financial crisis that
prompted the Debtor to seek bankruptcy relief. This case was filed to address the judgments
obtained by Ascentium and DCC, and the Debtor spent over a year negotiating with these creditors
to present a plan acceptable to both them and the court. The Debtor testified that she was counseled
on the alternative option of filing for Chapter 7 relief, which according to her liquidation analysis
would result in only an 8% distribution to unsecured creditors; however, she opted for Chapter 11
reorganization out of what the court deems a genuine desire to pay more to these creditors. Even
after the court rejected the Second Amended Plan, the Debtor did not consider dismissal or
conversion and continued in her efforts to present a confirmable plan.
Ascentium suggests that a Chapter 7 case for the Debtor would be an abuse of the
Bankruptcy Code, making her ineligible for discharge. The court is skeptical of this possibility.
The court may “dismiss a case filed by an individual debtor under this chapter whose debts are
primarily consumer debts . . . if it finds that the granting of relief would be an abuse of the
provisions of this chapter.” 11 U.S.C. § 707(b)(1) (emphasis added). It is well-settled in this
district and beyond that § 707(b) is inapplicable if the debtor’s debts are primarily business in
nature. See, e.g., In re Cromwell, No. 14-03707-5-SWH, 2015 WL 1119711, at *2 (Bankr.
E.D.N.C. Mar. 6, 2015); In re Fish, No. 13-05783-8-RDD, 2014 WL 657247, at *2 (Bankr.
E.D.N.C. Feb. 20, 2014); In re Jones, No. 08-05676-8-ATS, 2009 WL 102442, at *1 (Bankr.
E.D.N.C. Jan. 12, 2009). The court previously adopted a “totality of the circumstances” approach
to determining whether a debtor’s debts are primarily consumer debts, consistent with the United
States Court of Appeals for the Fourth Circuit’s precedent for applying a totality test in determining

good faith in filing petitions in Chapters 13 and 7. Jones, 2009 WL 102442, at *2 (citing Neufeld
v. Freeman, 794 F.2d 149, 152 (4th Cir. 1986); Green v. Staples (In re Green), 934 F.2d 568, 573
(4th Cir. 1991)).
While the issue is not before the court, it believes that the Debtor has viable arguments that
her debts are not primarily consumer in nature. The unsecured debts of Ascentium, DCC, and
Pawnee total less than half of all unsecured debt; however, the Debtor’s testimony revealed that
some seemingly consumer debts are rooted in the failed business. For instance, the Debtor secured
a loan to help pay the business expenses with her previously unencumbered vehicle, and she
borrowed money from her retirement account to pay business debt. At the hearing, the BA noted

that a student loan, especially for obtaining a professional degree, may in certain circumstances be
characterized as a business debt, and the court acknowledged this possibility in Cromwell.4
Cromwell, 2015 WL 1119711, at *5. Finally, under a totality test, it would be difficult to overlook
the fact that executions on Ascentium’s and DCC’s judgments, which are business debts, appear
to be the predominant reasons for the Debtor’s bankruptcy filing.
The court recognizes that while the Debtor is well-paid, this healthy income is the result of
her demanding and dedicated work as an emergency room physician. The Debtor testified that she

4 The court declined to adjudicate whether the subject student loans did indeed qualify as business debt as asserted
by the debtors, because their classification would not impact the court’s analysis under § 707(b)(1). Cromwell, 2015
WL 1119711, at *5
works 40-60 hours a week, and she is committed to continuing this schedule throughout the life of
the Third Amended Plan, at an age when others in her profession are likely reducing their
workload. The Third Amended Plan reserves the Debtor’s right to obtain a discharge until after
completion of payments to creditors. The Debtor is devoting an average of approximately
$8,000.00 per month or $96,000.00 per year toward the payment of unsecured creditors, and

through its Objection, Ascentium suggests that she should further curb expenses to allow for a
greater or quicker overall disbursement.
The Debtor explained convincingly why reducing some of her expenses deemed
extravagant by Ascentium was neither practical nor desirable. The Debtor contends that her home
would need extensive repair to be marketable and her cars are older models with high mileage.
The Debtor admitted that her food expenses are greater than for the average family but maintains
that the demands of her job necessitate take-out and other convenience meals which cost more than
home cooking. Ascentium does not dispute the decision to send the disabled child to a specialized,
private school but contends that the others should be in public school while the Debtor reorganizes

in bankruptcy. The Debtor’s eldest child is headed to college with a partial scholarship for an out-
of-state public university that makes the tuition comparable to in-state public universities. The
Debtor explained the need to pay the tuition for the Debtor’s youngest child to attend a parochial
school. The Debtor believes firmly that this education is in her child’s and her family’s best
interest and is committed continuing this expense. The court might agree with Ascentium if the
Debtor were not proposing a distribution to unsecured creditors substantially higher than required.
Most cases that find paying private school tuition in lieu of creditors as indicative of bad faith
reflect a meager distribution to unsecured creditors. The court suspects that the Debtor’s continued
career motivation is fueled in part by a desire to provide her children with a premium education,
and the Third Amended Plan is a good faith attempt to contemporaneously satisfy this goal and
provide graciously to the Debtor’s unsecured creditors.
Of all the Debtor’s continued household expenses, the court is most troubled by the Disney
timeshare mortgages, because retention of the timeshare interests is not necessary to an effective
reorganization. Requiring surrender, however, is not easy given the tenants by the entirety

ownership between the Debtor and her non-filing husband and the Debtor’s assurances that the
mortgages will paid only from his income. Like with the private school tuition, the court cannot
find that retention of the Disney timeshares is indicative that the Third Amended Plan is proposed
in bad faith when considering the totality of what is being provided to Ascentium and other
creditors under this plan.
B. Section 1129(a)(11)
Section 1129(a)(11), known as the feasibility test, requires that “[c]onfirmation of the plan
is not likely to be followed by the liquidation, or the need for further financial reorganization, of
the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization

is proposed in the plan.” 11 U.S.C. § 1129(a)(11). Whether a plan is feasible is a question of fact
for which the debtor bears the burden to show feasibility by a preponderance of the evidence. In
re Radco Props., Inc., 402 B.R. 666, 678 (Bankr. E.D.N.C. 2009) (citations omitted). “Feasibility
is ‘firmly rooted in predictions based on objective fact.’” Id. (quoting Cheatham, 78 B.R. at 109).
Feasibility “does not require that the debtor’s plan is guaranteed to be successful, but must merely
‘present a workable scheme or organization and operation from which there may be a reasonable
expectation of success.’” In re Gyro-Trac (USA), Inc., 441 B.R. 470, 482-83 (Bankr. D.S.C. 2010)
(quoting Crestar Bank v. Walker (In re Walker), 165 B.R. 994, 1004 (E.D. Va. 1994)).
Ascentium argues that the Third Amended Plan is not feasible, because the Debtor’s
monthly reports reflect expenses that exceeded scheduled projections, and her expenses will
increase with commencement of payments under the Third Amended Plan. Ascentium contends
that payment to the individual unsecured creditors “70% of their claims over a period of nine (9)
years at 1.25% interest . . . is both unsustainable and unreasonably long.” Objection ¶8, ECF No.

210. The issue of feasibility was first raised by this court in its consideration of the Second
Amended Plan which stretched out payment over 20 years. The court is satisfied with the Debtor’s
reduction of the overall payment period to individual unsecured creditors by more than half and is
persuaded that the Debtor’s projections of income and expenses are reasonably accurate. The
Debtor has demonstrated a commitment to the Third Amended Plan, and absent unforeseen
circumstances, the Debtor can continue her current job performance for the next decade.
Ascentium remains protected by the reservation of discharge for the Debtor until completion of
the Third Amended Plan.
C. Section 1129(a)(15)

Finally, Ascentium’s Objection triggers the applicability of § 1129(a)(15) which provides
that—
[i]n a case in which the debtor is an individual and in which the holder of an allowed
unsecured claim objects to the confirmation of the plan—
(A) the value, as of the effective date of the plan, of the property to be
distributed under the plan on account of such claim is not less than the
amount of such claim; or
(B) the value of the property to be distributed under the plan is not less
than the projected disposable income of the debtor (as defined in section
1325(b)(2)) to be received during the 5-year period beginning on the date
that the first payment is due under the plan, or during the period for which
the plan provides payments, whichever is longer.
11 U.S.C. § 1129(a)(15). This subsection was added by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (“BAPCPA”) and incorporates the Chapter 13 projected
disposable income requirement triggered when an unsecured creditor that is not being paid the full
value of its claim objects to a proposed plan. See 11 U.S.C. § 1325(b)(1).5 Section 1325(b)(2)
defines “disposable income” as “current monthly income received by the debtor . . . less amounts

reasonably necessary to be expended.” 11 U.S.C. § 1325(b)(2) (emphasis added). Section
1325(b)(3) goes on to provide that what constitutes “amounts reasonably necessary to be
expended” shall be determined in accordance with subparagraphs (A) and (B) of § 707(b)(2),
familiarly known as the “means test,” if the Chapter 13 debtor is above an applicable median
family income benchmark.
The Chapter 7 means test compares an individual debtor’s monthly income to the median
income for that debtor’s state, and if the debtor’s income is greater than the median, then allowed
expenses are subtracted to determine whether the debtor would have enough disposable income to
pay toward unsecured debts. For basic necessities such as housing and utilities, transportation,

food, and clothing, the means test allows deductions for amounts specified under the National
Standards and Local Standards rather than the debtor’s actual expenses for these categories. See
11 U.S.C. § 707(b)(2)(A)(ii).

5 This subsection is similar to § 1129(a)(15) and provides that—
[i]f the trustee or the holder of an allowed secured claim objects to the confirmation of the [Chapter 13] plan,
then the court may not approve the plan unless, as of the effective date of the plan—
(A) the value of the property to be distributed under the plan on account of such claim is not less
than the amount of such claim; or
(B) the plan provides that all of the debtor’s projected disposable income to be received in the
applicable commitment period beginning on the date that the first payment is due under the plan will be
applied to make payments to unsecured creditors under the plan.
11 U.S.C. § 1325(b)(1).
Ascentium proffers that § 1129(a)(15) adopts the means test for calculating projected
disposable income, and because the Debtor earns significantly more than the applicable median
income in North Carolina, her projected disposable income must be calculated using the
standardized expenses rather than her actual expenses. Under this analysis, her projected
disposable income is certainly more than being paid toward the Third Amended Plan. The BA

questioned whether the means test applies in Chapter 11, and the court now finds that it does not.
Soon after the enactment of BAPCPA, the United State District Court for the District of
Kansas considered the argument that the means test applies in Chapter 11, noting that “[s]ince
§ 1325(b)(3) specifies that the expense portion of the calculation of projected disposable income
under § 1325(b)(2) for an above-median-income debtor must be determined according to the
Chapter 7 means test, this is a plausible way to interpret § 1129(a)(15)(B)’s incorporation of
§ 1325(b)(2).” In re Roedemeier, 374 B.R. 264, 272 (Bankr. D. Kan. 2007). The court did not,
however, agree with this interpretation. The court focused on the three official bankruptcy forms
concerning “current monthly income” for individual debtors and the drafters’ deliberate omission

of means test expenses from the Official Form 22B applicable to individual Chapter 11 debtors:
The Chapter 11 form is the simplest of the three [22A, 22B, and 22C], since the
means-test deductions of § 707(b)(2) are not employed in determining the extent of
an individual Chapter 11 debtor's disposable income. Section 1129(a)(15) requires
payments of disposable income “as defined in section 1325(b)(2),” and that
paragraph allows calculation of disposable income under judicially-determined
standards, rather than pursuant to the means test deductions, specified for higher
income Chapter 13 debtors by § 1325(b)(3).

Id. (quoting Section D.2. of 2005 Committee Note to Official Bankruptcy Forms 22A, 22B, and
22C, reprinted in Norton Bankruptcy Law and Practice 2d, Bankruptcy Rules, at 1146
(Thomson/West 2006–2007 ed.)). The Roedemeier court concluded that “§ 1129(a)(15)(B) must
be read to allow a judicial determination of the expenses that are reasonably necessary for the
support of the debtor and his or her dependents.” Id. at 272-73.
More recently, the United States Bankruptcy Court for the District of Nebraska followed
Roedemeier and reasoned that—
[s]ection 1129(a)(15) specifically incorporates Chapter 13's disposable income
definition found in § 1325(b)(2), but it is silent as to the determination of reasonable
expenses for purposes of calculating disposable income. That is, while § 1325(b)(3)
can be read as an instructional section of permissible expenses for § 1325(b)(2)—
and, therefore, presumably incorporated into § 1325(b)(2)— § 1129(a)(15) does
not include it. The omission seems intentional, as noted in a leading bankruptcy
treatise:

[T]he reference in section 1129(a)(15) is explicitly to, and only to,
paragraph (2) of section 1325(b). Congress had it within its power
to draft the cross-reference more broadly, but did not. It presumably
took into account the business orientation of most chapter 11s, as
well as the increased levels of creditor involvement in a [sic] chapter
11 cases. These factors, together with the requirement that the
debtor obtain the consent of all unsecured creditor classes under
section 1129(a)(8), would tend to indicate that individual creditor
insistence on the artificial expenses standards found in chapter 7 are
neither necessary nor appropriate in chapter 11 cases.

In re Woodward, No. BK11-40936, 2014 WL 1682847, at *4-5 (Bankr. D. Neb. Apr. 29, 2014)
(quoting 7 Collier on Bankruptcy ¶ 1129.02[15][a] (16th ed. rev. 2014)).6 See also In re Johnson,
No. 14-57104, 2016 WL 8853601, at *17 (Bankr. S.D. Ohio Nov. 10, 2016) (finding that the rule
of statutory construction for applying the plain meaning of a statute requires holding that the
Chapter 7 means test applicable to above-median income debtors in Chapter 13 does not also apply
in Chapter 11); In re Bacardi, No. 09 B 25757, 2010 WL 54760, at *5 n. 2 (Bankr. N.D. Ill. Jan.
6, 2010) (opining that the means test does not apply in Chapter 11, because § 1129(a)(15) mentions
§ 1325(b)(2) but not § 1325(b)(3)); but see In re Bennett, No. 07-10864-SSM, 2008 WL 1869308,

6 The Roedemeier court also referenced Collier on Bankruptcy in describing as “flawed” the position taken by
Ascentium that calculation of a Chapter 11 debtor’s disposable income must use expenses established by the Internal
Revenue Service rather than actual expenses. Roedemeier, 374 B.R. at 272.
at *2 n. 6 (Bankr. E.D. Va. Apr. 23, 2008) (suggesting that the means test may apply in calculating
“projected disposable income” under § 1129(a)(15)).
The court agrees that in considering whether the Debtor is dedicating her projected
disposable income to the Third Amended Plan, it may judicially determine under § 1325(b)(2)
what expenses are reasonably necessary to be expended rather than apply the means test. As

discussed supra, the court is satisfied that the Debtor’s projected expenses are reasonable and
necessary under the totality of the circumstances. The Debtor’s projected income exceeds these
expenses by over $200,000.00 annually, all of which she is dedicating to the Third Amended Plan
in satisfaction of § 1129(a)(15)(B).
IV. CONCLUSION
When Ascentium, along with DCC and the BA, objected to the Debtor’s Original Plan, the
court shared the concerns about the Debtor’s lifestyle and expenses in the midst of financial
reorganization. The court has since been impressed by the Debtor’s continued efforts to structure
a plan that strikes a balance between being fair to her business creditors and allowing her to support

her family in a similar manner to which they are accustomed. The Debtor’s expenditures
undoubtedly exceed what is necessary to maintain a minimal standard of living; however, she has
made some concessions, and considering the totality of the Debtor’s circumstances, the court
cannot find that the Third Amended Plan is either proposed in bad faith or infeasible.
The Debtor was prepared to pay Ascentium and her other unsecured creditors 100% of
their claims and was stopped short only by this court’s concern over feasibility of the length of the
repayment term and the preferential treatment given to the Judgment Creditors in negotiation of
the Second Amended Plan. The court is somewhat surprised that Ascentium renewed its initial
objections to confirmation simply because the Third Amended Plan reduced expected payment on
its claim to 70%. This distribution is significantly higher than Ascentium could expect in a Chapter
7 liquidation, and conversion appears to be a realistic option for the Debtor given the business
nature of many of her debts. For almost the next decade, the Debtor is devoting her projected
disposable income to the Third Amended Plan, and her discharge is contingent on her performance.
For these reasons, the court found that the Debtor satisfied all the requirements of § 1129(a),

overruled Ascentium’s Objection, and entered the Confirmation Order.
END OF DOCUMENT

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10459156. Public record. Not legal advice.