Circuits are split on the issue of whether bankruptcy courts can confirm plans containing non-consensual third-party releases. Historically, the split involved the application of Bankruptcy Code § 105 or 524. Recently, however, a few secured creditors have relied on Stern v. Marshall, in which the Supreme Court held that 28 U.S.C. § 157(b)(2)(C) is unconstitutional to the degree it authorizes the bankruptcy court to determine common law compulsory counterclaims that are not necessarily resolved in determining the allowance of a proof of claim, to challenge confirmation of a plan with non-consensual third-party releases.

One such attempt failed. In 2013, in In re St. Charles St. African Methodist Episcopal Church of Boston (“St. Charles”), a secured creditor objected to confirmation of a plan that included the release of a third party’s guaranty. Citing Stern, it argued that approval of the release via confirmation would be “tantamount to adjudication of the guaranty, which, as a two-party dispute that arises under state law between non-debtor parties, cannot constitutionally be adjudicated by a non-Article III judge.”