In re: Hogue, No. 10-61143-11 (Bankr. D. Mont., March 22, 2011)
In a Chapter 11 reorganization, just as in a Chapter 13 plan, the bankruptcy court must determine whether or not the debtor's proposed plan is feasible. In a recent 9th Circuit decision out of Montana, a bankruptcy court held that a debtor entity's plan was not feasible.
Under Chapter 11, the court must confirm a plan unless it is not feasible, meaning that the liquidation or further financial reorganization of the debtor is likely to follow the confirmation of the plan. Basically, that the plan will not work and will not save the debtor. The burden of establishing feasibility rests with the debtor, and will be determined based on the facts of the case.
In this case, the debtor was a plumber who earned $5,124.99. He purchased a meat processing plant, Big Timber Meats, with his wife. In his Chapter 11 filings, the debtor listed assets in the amount of $845,671.81 and debt in the amount of $1,296,628.81. Most of his debt was secured. Overall, his expenses exceeded his earnings every month by $130.
Under the debtor's plan, he planned to pay in full his $25,000 administrative claims in cash on the effective date of the plan, and his IRS claims were to be paid in full over the course of the plan. However, the debtor based most of the ability to make these payments on a speculative increase in earnings from his meat processing plant.
The trustee in this case objected to the plan as not feasible because the debtor did not establish that he had enough income to pay the payments in the plan. The debtor planned to turn around the meat packing plant from a $20,000 yearly loss to a $40,000 profit in a year. The court found this overly optimistic and therefore not likely to be feasible. Although the debtor provided his own testimony that the plan would work, this testimony was not sufficient to overcome the factual numbers he had submitted.
