Great Western Bank v. Sierra Woods Group
United States Court of Appeals for the Ninth Circuit
935 F.2d 1174 (1992)
Sierra Woods (debtor) proposed a reorganization plan giving second-lienholder Great Western Bank (creditor) interest-only payments below the note's actual rate for five years, with the shortfall accruing and adding to principal (negative amortization) before amortizing over the remaining term; the bankruptcy court rejected the plan as unfair as a matter of law based purely on the presence of negative amortization, without conducting a case-specific factual analysis, and a modified plan without negative amortization was separately rejected for exposing Great Western to excessive risk. The district court affirmed rejection of the first plan on different grounds without addressing whether negative amortization was legally permissible.
Whether a reorganization plan that provides for negative amortization is unfair as a matter of law.