Bankruptcy / Bankruptcy Law / Chapter 11 Bankruptcy

Feasibility Required To Win Approval For Chapter 13 Bankruptcy Plan

Feasibility Required To Win Approval For Chapter 13 Bankruptcy Plan–Image via Wikipedia

In a recent Chapter 13 bankruptcy case here in Texas, a debtor was denied the confirmation of his Chapter 13 bankruptcy because it was deemed not feasible.  Because of the lack of feasibility and the fact that it was clear that the debtor would not be able to propose a feasible Chapter 13 bankruptcy in future, the creditor was granted relief from the automatic stay. The Debtor’s operations during this case raise feasibility concerns and issues about the proposed interest rate in the Plan. The Debtor has accumulated very little cash during the bankruptcy—it had $145,719.00 in cash on the Petition Date and Ms. Seale testified the Debtor’s cash balance on December 2, 2010, is $188,000.00. It has thus averaged approximately $5,637.00 per month in added cash since the Petition Date while at the same time, it has not kept up with its post-petition payables (they are as high now as they were on the Petition Date), has not escrowed for its property taxes, has paid SBL approximately $10,000 less per month than it proposes in the Plan, and has to cut deals on its professional expenses to pay them over time after the Effective Date since it has not paid them as incurred during the case.

The bankruptcy court noted that because of the debtor’s history of financial issues, the fact that he was highly leverage and lacked the proper working capital reserves and sufficient cash flow that the Chapter 13 bankruptcy plan was simply not feasible.  Debtors, both corporate and individual, must prove that they can actually fund a Chapter 13, bankruptcy plan to win confirmation.  In this case the debtor had to surrender assets to the creditor because they could not afford to include them in a Chapter 13 bankruptcy repayment plan.