Cite as: Keith M. Lundin, Lundin On Chapter 13, § 111.1, at ¶ ____, LundinOnChapter13.com (last visited __________).
To accomplish confirmation, the debtor must be “able to make all payments under the plan and to comply with the plan.”1 This feasibility test for confirmation has been described as the upper limit on what a Chapter 13 debtor may propose to pay through a plan.2
Despite strong policy statements by many courts favoring efforts at rehabilitation,3 § 1325(a)(6) prohibits confirmation of a plan that calls for payments or other performance beyond a reasonable appraisal of the debtor’s abilities. The feasibility requirement in § 1325(a)(6) is complemented by the eligibility requirement in § 101(30) that the debtor’s income is “sufficiently stable and regular . . . to make payments under a plan”4 and by the mandate in § 1322(a)(1) that a Chapter 13 plan shall “provide for the submission of all or such portion of future earnings or other future income of the debtor . . . as is necessary for the execution of the plan.”5
Feasibility is a fact-bound concept. As described by the Bankruptcy Appellate Panel for the First Circuit:
Feasibility is a factual determination . . . . To satisfy feasibility, a debtor’s plan must have a reasonable likelihood of success, i.e., that it is likely that the debtor will have the necessary resources to make all payments as directed by the plan. . . . The debtor carries the initial burden of showing that the plan is feasible. . . . Before confirmation, the bankruptcy court should be satisfied that the debtor has the present as well as the future financial capacity to comply with the terms of the plan.6
At its simplest, feasibility requires that the debtor’s income exceed expenses by an amount sufficient to make the payments required by the plan. When the numbers are close, the bankruptcy courts tend to find feasibility in favor of the debtor.7 When the debtor’s budget will not support the proposed payments into the plan, the plan is not feasible and confirmation is refused.8
Challenges to feasibility become complicated matters of evidence and demand crystal-ball work from bankruptcy judges when the ability to make payments under the plan depends on uncertain job stability,9 the likelihood of extraordinary expenses,10 the outcome of pending litigation11 or the availability of income from an unpredictable source.12 Plans funded in whole or in part by gratuitous contributions from family members or friends create both feasibility13 and eligibility14 problems. Feasibility is enhanced when the plan is funded by an income deduction order to the debtor’s employer rather than with voluntary payments by the debtor to the trustee or directly by the debtor to creditors.15 Consistent with the rehabilitative intent of Chapter 13, some bankruptcy courts have shown extraordinary willingness to find that a plan is feasible and to give debtors at least one chance (sometimes more) to prove ability by performance.16
Feasibility is often the principal issue at confirmation when the debtor is engaged in business. Debtors in Chapter 13 because of a failing business who propose to fund the plan from a miraculous rehabilitation of that same business have a significant burden to prove that something more or different will happen after confirmation. Business debtors with speculative proposals for increased income will not survive the feasibility test.17 Business debtors survive feasibility challenges when they demonstrate that the business is within the debtor’s capabilities as a manager or operator and sufficient success to fund the plan is possible without miracles.18
Certain recurring fact patterns ignite feasibility disputes. For example, any Chapter 13 plan that includes a balloon payment to a creditor is suspect of confirmation unless there is proof of circumstances likely to produce a bucket of cash at just the right time to make the payment.19 Citing In re Brunson20 several courts have considered the following factors to determine whether a balloon payment plan is feasible:
the equity in the property at the time of filing;
the future earning capacity of the debtor;
the future disposable income of the debtor;
whether the plan provides for the payment of interest to the secured creditor over the life of the plan;
whether the plan provides for payment of recurring charges against the property, including insurance, local property taxes and utility charges; and
whether the plan provides for substantial payments to the secured creditor which will significantly reduce the debt and enhance the prospects for refinancing at the end of the plan.21
Debtors in trouble for failing to pay alimony or child support and convicted criminals with probation or restitutionary obligations have an elevated burden to explain that external factors—jail, for example—are not likely to interrupt the regularity of payments into the plan.22 Support for the plan, or at least silence, from the former spouse or prosecutor can be invaluable at confirmation. In one interesting reported decision, feasibility of a plan that included a large support claim turned on the dismissal of one spouse’s case in a joint Chapter 13 filing. In In re Pfalzgraf,23 Dennis and Kathleen Pfalzgraf filed a joint Chapter 13 plan that was not feasible because of a large priority child support claim filed for Dennis’s child from a prior marriage. To solve the feasibility problem, Dennis’s case was dismissed. Kathleen’s separate Chapter 13 plan was feasible because the claim of Dennis’s child was allowable in Kathleen’s case24 but was not entitled to priority because it was not the claim of an ex-spouse or child of Kathleen.25
Debtors funding the plan from the sale of property must prove that a sale is likely when required by the plan and that the sale will produce sufficient proceeds to fund the plan. There is some question whether a debtor dependent on the sale of property to fund the plan is eligible for Chapter 13 relief.26 If the debtor with a liquidating plan survives an eligibility challenge, the next battle will be proof that the proposed sale is feasible. Debtors bear a substantial but not insurmountable burden of proving feasibility of a plan that sells assets.27 Evidence of comparable sales, the testimony of a broker or agent and an appraisal of the property are useful evidence in a dispute over the feasibility of a sale plan. Several courts have cited these “guidelines” from In re Newton28 for evaluating the feasibility of funding from the sale of property:
The plan should specify the terms under which the debtor proposes to market the property, including the listing price and the length and commencement date of the listing agreement. It also should incorporate a default remedy to relieve the affected [creditors] from the automatic stay. . . . The debtor must produce evidence as to past marketing efforts, the state of the market for the subject asset, current sale prospects, the existence and maintenance of “equity cushion” in the property, and all other circumstances that bear on whether the creditor will see its way out of the case financially whole.29
A cushion or surplus in the budget can create problems or solve problems at confirmation. Some courts have cited the surplus of income over expense in a debtor’s budget as evidence of a lack of good faith at confirmation under § 1325(a)(3)30 or as evidence that the debtor has not committed all projected disposable income under § 1325(b).31 In contrast, other courts have concluded that some cushion in the debtor’s budget is essential to prove feasibility under § 1325(a)(6) because no Chapter 13 debtor can perfectly predict future income and expenses.32 There is truth to the observation in In re Greer33 that Chapter 13 debtors are often too optimistic about their abilities to make payments into the plan and the stability of their expenses. Feasibility is enhanced if there is cushion in the budget to weather periods during which expenses exceed projections or income falls short.
Feasibility problems sometimes develop from a battle over the value of collateral. If the debtor bases the calculation of payments into the plan on an unrealistically low value of collateral and litigation later corrects that value, the payments necessary to retire the higher value may push the plan beyond the limits of the debtor’s budget.34 Sometimes surrendering some collateral35 or extending the repayment period will solve the feasibility problem created by an unfavorable valuation.
Feasibility of the plan may turn on the allowance of claims or the outcome of objections to claims. For example, in In re Michels,36 the plan included a $1,200-per-month payment to Maynard Savings Bank on account of a secured claim. At the time of confirmation, the debtor did not have sufficient net income to fund a plan that included the $1,200-per-month payment to the bank. However, the bank failed to timely file a proof of claim. The bank instead filed an untimely proof of claim. The bankruptcy court held that feasibility of the plan depended on objection to the bank’s untimely claim:
Debtor presented a plan which was not feasible if all claims addressed in the plan were paid. . . . However, the largest secured creditor, Maynard Savings Bank, . . . did not have an allowed secured claim. . . . [T]he $1,200 earmarked for Maynard Savings Bank would not be paid under the plan. . . . [W]ith the $1,200 no longer payable to Maynard Savings Bank, Debtor then has adequate disposable income to make all payments under the plan and the plan becomes feasible. . . . [T]his analysis does not include consideration of the Bank’s late-filed claim. . . . If an objection is lodged, the Code is clear that the claim is not allowable . . . . The admittedly peculiar conclusions to be drawn from all this is that if a party in interest objects to the untimely claim of Maynard Savings Bank, the plan, as proposed by Debtor, is confirmable . . . . However, . . . including treatment of the Bank’s claim in the Plan exceeds Debtors’ disposable income and the plan is not confirmable on feasibility grounds.37
And then there is the Chapter 13 debtor who litigated with a creditor until the plan was not feasible. In Kittel v. First Union National Bank (In re Kittel),38 the debtor was the defendant in a foreclosure action that was “vastly complicated” by the debtor’s “convoluted and litigious manner.”39 When the smoke cleared, the outcome of the foreclosure action was irrelevant: once the bank’s attorney’s fees and expenses were added to the bank’s claim, the debtor was “wholly unable to make payments sufficient to service her obligation to the bank.”40 The debtor litigated herself right out of Chapter 13.
1 11 U.S.C. § 1325(a)(6).
2 In re Red, 60 B.R. 113 (Bankr. E.D. Tenn. 1986).
3 See, e.g., In re Capodanno, 94 B.R. 62, 64 (Bankr. E.D. Pa. 1988) (Proposed plan is feasible notwithstanding that the debtor has erratic income, the debtor has considerable financial needs for a family of seven children, and the plan requires payments for more than 50 months. “[R]ecent cases recognize that § 1325(a)(6) only requires that the debtors’ budget appears realistic. . . . [W]e fail to see where we are doing any favors to persons in dire financial straits by declining to give them a chance to preserve their homes, thereby pushing them closer to or into the growing ranks of the homeless. Therefore, we are inclined to give debtors a chance.”).
4 See § 10.1 [ Debtor Must Be Able to Make Payments under a Plan ] § 13.1 Debtor Must Be Able to Make Payments under a Plan.
5 See § 203.3 [ Submission of Future Income ] § 113.5 Submission of Future Income.
6 First Nat’l Bank of Boston v. Fantasia (In re Fantasia), 211 B.R. 420, 423 (B.A.P. 1st Cir. 1997).
7 See, e.g., In re Messinger, 241 B.R. 697, 700 (Bankr. D. Idaho 1999) (Shortfall of $34 per month in a budget that will produce monthly payments of $600 to the trustee is “relatively minor,” and feasibility “is not seriously implicated.”).
8 See, e.g., Chambers v. Countrywide Home Loans, Inc. (In re Chambers), Nos. 02-34627DWS, 02-1375, 2003 WL 22996980 (Bankr. E.D. Pa. Dec. 10, 2003) (unpublished) (Plan is not feasible that requires $530 per month from a debtor with gross income of $450 per month.); In re Lasica, 294 B.R. 718 (Bankr. N.D. Ill. 2003) (Plan is not feasible because funds available for allowed unsecured claims could not pay the promised dividend.); In re Shula, 280 B.R. 903 (Bankr. S.D. Ala. 2001) (Budget indicates an increase in expenses that leaves no discretionary income; debtor did not prove that she could make payments on any plan that would include Ford Motor Credit Company’s secured claim.); In re Barnes, 275 B.R. 889, 899 (Bankr. E.D. Cal. 2002) (“[T]he proposed plan is not feasible . . . . The original Schedules I and J show no disposable income with which to fund the plan. While the debtors amended Schedule J to reduce their monthly living expenses, they were unable to pay the resulting projected disposable income to the trustee . . . . [T]he debtors . . . conceded that Mrs. Barnes would need to return to work before the plan becomes feasible.); In re Thornhill, 268 B.R. 570, 573 (Bankr. E.D. Cal. 2001) (Plan that proposes to pay more than $90,000 to creditors is not feasible based on 36 monthly payments of $1,200. “The magnitude of the feasibility problem in this Plan is readily ascertainable with the use of a simple calculator which suggests to the court that the Plan was never reviewed for feasibility before it was submitted for confirmation. The court views the submission of this Plan for confirmation as potentially sanctionable under Rule 9011(b).”); In re Nosker, 267 B.R. 555, 562 (Bankr. S.D. Ohio 2001) (“[D]ue to the Debtor’s incomplete disclosures and evasive testimony the Court cannot conclude that Debtor’s income exceeds his expenses by an amount sufficient to make the payments required by the Second Revised Plan.”); In re Vincente, 257 B.R. 168 (Bankr. E.D. Pa. 2001) (Debtor with monthly disposable income of $595 cannot satisfy a plan that proposes full payment with 6% interest of a secured claim of $56,664.81.); In re Rowe, 239 B.R. 44 (Bankr. D.N.J. 1999) (Plan fails feasibility test because § 1322(c)(2) is not available with respect to a prepetition foreclosure judgment and debtor has insufficient disposable income to cure default and maintain payments under § 1322(b)(5).); In re Ross, 231 B.R. 635 (Bankr. S.D. Ohio 1999) (Plan is not feasible because debtors’ income from farming is not sufficient to pay family living expenses and make the payments proposed by the plan.); In re Binder, 224 B.R. 483, 488–89 (Bankr. D. Colo. 1998) (Proposal to modify confirmed plan to cure postconfirmation mortgage arrearages in 52 months is not feasible. “[Fifty-two] months is an extraordinarily long period of time to cure an arrearage of mortgage payments. . . . This lengthy cure period is necessitated by the Debtor’s precarious financial condition . . . . The Debtor’s budget . . . was noticeably tight. . . . [S]he projected unusually low expenses for a family of four. Her budget had no cushion. . . . Debtor’s only vehicle is a Jeep Cherokee with 98,000 miles . . . . [S]he has allocated only $30.00 per month ($360.00 per year) for gas, oil, maintenance and repair costs. Given the vehicle’s use and age, this is unrealistic. . . . [Three hundred dollars] per year for clothing for herself and three growing children . . . . [Thirty dollars] per month for medical or dental expenses has already proven to be inadequate. . . . The Debtor’s financial resources are simply too limited and unpredictable to make the proposed modification feasible or to justify cure of the existing arrearage over the next 52 months.”); In re Dorf, 219 B.R. 498 (Bankr. N.D. Ill. 1998) (Plan is not feasible that proposes to pay in full priority claim for support of $33,800 and ongoing monthly support of $3,300 where budget shows debtor can only afford monthly payments of $2,669.); In re Turpen, 218 B.R. 908, 915 (Bankr. N.D. Iowa 1998) (“Particularly relevant is how debtors propose to finance the monthly deficiency they say will exist. It seems reasonable to conclude that a monthly deficit would be financed in one of two ways—by borrowing or by selling assets. The plan does not state that they will borrow. . . . The possible borrowing calls the feasibility of the plan into question.”); In re Lewis, 215 B.R. 880, 881–82 (Bankr. D. Alaska 1997) (Plan is not feasible because debtors propose to remain in possession of property that has been contaminated, but the debtors “do not have the ability to incur remediation costs and make the payments required by the second amended plan.” Although the obligation to remediate contamination “can be an unsecured pre-petition claim subject to discharge,” the requirement to clean up “cannot be discharged when the debtors remain in possession of [contaminated] property.” Debtors “failed to provide evidence in accordance with 11 U.S.C. § 1325(a)(6) that they will be able to make the payments under the plan and comply with the plan. The plan in its current form is not confirmable because it does not make adequate allowance for the cost of remediation and because the debtors have failed to submit adequate proof indicating what the costs of remediation will be.”); In re Erbaugh, 199 B.R. 367, 369 (Bankr. S.D. Ohio 1996) (“At the time of filing his petition . . . the debtor was earning $800/week, he projected a surplus of income over expenses in the amount of $74/month. Since that time the debtor’s income has fallen to $390/week . . . . Although the debtor provided general testimony that he was cutting expenses and indicated some of the expenses he was curtailing, he provided no specific numerical data demonstrating a monthly surplus to enable him to make his monthly payments to the Chapter 13 trustee. . . . [H]e will have no income to cover any type of unexpected or emergency expenses. . . . [I]t is highly unlikely that the debtor will be able to make all of his proposed payments under the chapter 13 plan and confirmation of the plan will be denied under § 1325(a)(6).”); In re Rosemiller, 188 B.R. 129 (Bankr. D.N.J. 1995) (No Chapter 13 plan is feasible when debtor has excess monthly income of $306 and must satisfy in full secured and priority tax claims totaling $67,829.); Todd v. Railroad Fed. Credit Union (In re Todd), 181 B.R. 997 (Bankr. N.D. Ala. 1995) (Plan is not feasible under § 1325(a)(6) where debtor has a net monthly income of $2,400, living expenses of $660, $1,300 needed for mortgage payments, leaving $440 per month toward the $1,100 needed to pay prepetition debts in full. Debtor is $660 per month short of funding for the plan.); In re Neill, 158 B.R. 93 (Bankr. N.D. Ohio 1993) (Plan is not feasible where proposal to pay $901 a month for 24 months will only pay 40% of mortgage arrearages.); In re Belden, 144 B.R. 1010 (Bankr. D. Minn. 1992) (Proposal to pay $65 a month is not feasible. The $20 a month budgeted for clothing and $150 a month for food for the debtor and her son are too low. The debtor has not budgeted any money for recreation, entertainment, newspaper, magazines or the like. The debtor’s employment outlook is bleak and the debtor’s employment history is spotty. The debtor filed nine bankruptcy cases including six Chapter 13 cases between 1978 and 1992.); In re Wilson, 117 B.R. 714 (Bankr. M.D. Fla. 1990) (Plan is not feasible where expenses, including plan payment, exceed income by $117 per month.); In re Wilkinson, 99 B.R. 366 (Bankr. N.D. Ohio 1989) (Monthly income of $2,268 does not permit monthly expenses of $2,070, plan payments of $150, plus payments to secured claim holders “outside” the plan totaling $10,038.); In re Chrzanowski, 70 B.R. 447 (Bankr. D. Del. 1987) (Feasibility test failed where debtor admits that he cannot afford to make payments proposed in the plan.); In re Lattimore, 69 B.R. 622 (Bankr. E.D. Tenn. 1987) (Where debtor’s estimated monthly surplus is $188 and plan proposes monthly payment of $214, plan fails feasibility test.); In re Manes, 67 B.R. 13 (Bankr. E.D. Ark. 1986) (Debtor’s expenses and plan payment exceed disposable monthly income by $7.58, so plan is not feasible.); In re Langguth, 52 B.R. 572 (Bankr. N.D. Ill. 1985) (Debtors mathematically lack sufficient net monthly income to make payments to redeem real estate from sole creditor.).
9 See In re Mandrayar, 174 B.R. 289 (Bankr. S.D. Cal. 1994) (Feasibility objection is overcome where debtor secured regular employment as an engineer after filing Chapter 13. Debtor can amend statements and schedules to reflect change in employment.); In re Rose, 101 B.R. 934 (Bankr. S.D. Ohio 1989) (Future income from commissions is too speculative to support feasibility of plan.); In re Compton, 88 B.R. 166, 167 (Bankr. S.D. Ohio 1988) (Unemployed debtors’ plan is feasible because debtors’ “re-employment . . . is at least as likely as it is unlikely. . . . All that is required for the court to find that a plan is feasible . . . is that the debtors’ expectations of income are sufficiently realistic that they should be given an opportunity to carry out the plan they propose.”); In re Van Gordon, 69 B.R. 545 (Bankr. D. Mont. 1987) (Debtor’s employment prospects are good. Debtor has additional income from a part-time business venture. Bar date for filing proofs of claim has expired and only two unsecured claim holders totaling $346 have filed proofs of claim. Plan is feasible.); In re Foster, 61 B.R. 492 (Bankr. N.D. Ind. 1986) (Plan is feasible even though debtor’s projected income is optimistic. The working hours contemplated by the debtor are long, including 40 hours per week in a factory and an additional 36 to 38 hours per week as a farmhand.).
10 See In re Goodavage, 41 B.R. 742 (Bankr. E.D. Va. 1984) (60-month plan not feasible where there is no surplus in the budget, the debtor’s employment is seasonal, and the schedules indicate substantial debts for medical expenses. The plan rests on a “delicately balanced budget” that is “not likely to maintain its integrity over a five-year period.”).
11 See Bass v. Fillion (In re Fillion), 181 F.3d 859 (7th Cir. 1999) (Plan to sell a portion of farm to pay creditors is feasible because debtor prevails in separate adversary proceeding with respect to ownership of the land. Debtor’s father deeded farm to debtor with reservation of life estate. Debtor moved in with her three children and relationship to father deteriorated. Father filed state court lawsuit to rescind transfer of land. Debtor filed Chapter 13 case. On father’s objection to confirmation and separate adversary proceeding for rescission of deed, there was no evidence that debtor promised to support father in exchange for transfer of land; therefore, rescission is not appropriate, and plan to sell portion of farm is feasible.); Chambers v. Countrywide Home Loans, Inc. (In re Chambers), Nos. 02-34627DWS, 02-1375, 2003 WL 22996980 (Bankr. E.D. Pa. Dec. 10, 2003) (unpublished) (Success in adversary proceeding to rescind mortgage will not make plan feasible because plan makes no provision for even an unsecured claim from the mortgage holder and payments necessary to pay car loan and taxes exceed the debtor’s ability to pay.); Ewald v. National City Mortgage Co. (In re Ewald), 298 B.R. 76 (Bankr. E.D. Va. 2002) (Plan fails test in § 1325(a)(6) because feasibility depends on favorable outcome in three-year-old lawsuit and debtor presented no evidence of a reasonable likelihood of success in that litigation.); In re Craig, 112 B.R. 224 (Bankr. N.D. Ohio 1990) (Plan is not feasible under § 1325(a)(6) when funding depends on collection of a note and the debtor has failed to produce evidence that the note is collectible.); In re Reines, 30 B.R. 555 (Bankr. D.N.J. 1983) (Plan based in part upon highly speculative return from a lawsuit that the trustee declined to pursue is not feasible.).
12 See In re Cushman, 263 B.R. 293, 294 (Bankr. W.D. Mo. 2001) (“Although Cushman has supplied the court with some evidence that he had considerable gambling winnings in 1999 and 2000, the Court finds that he has failed to establish that it is ‘likely that he will have the necessary resources to make all of the payments as directed by the plan.’ . . . [G]ambling, regardless of the ability of the gambler, is inherently too uncertain a source of income to fund a Chapter 13 Plan.”); In re Olp, 29 B.R. 932 (Bankr. E.D. Wis. 1983) (Plan is not feasible when the debtor’s wife’s income and child support payments are necessary to the plan and the wife is not a party to the petition.).
13 See, e.g., In re Crowder, 179 B.R. 571, 574 (E.D. Ark. 1995) (Debtor does not have regular income and is not eligible, and the plan is not feasible in part because the debtor failed to prove that her father could make voluntary contributions sufficient to fund the plan.); In re Porter, 276 B.R. 32, 38 (Bankr. D. Mass. 2002) (That a significant portion of the income needed to fund the proposed plan will come from gratuitous payments by family members is one reason motion to convert from Chapter 7 to Chapter 13 is denied. “[T]he Court . . . will always be reluctant to confirm a Chapter 13 plan, whose feasibility depends so significantly upon contributions from family members of a debtor, and where no legally binding obligation currently exists such that the lion’s share of the required income stream is entirely promissory.”); In re McNichols, 249 B.R. 160, 175 (Bankr. N.D. Ill. 2000) (“That the Debtor seeks to partially fund the Plan based on unspecified gifts or loans from unidentified sources is speculative and uncertain.”); In re Felberman, 196 B.R. 678, 685–86 (Bankr. S.D.N.Y. 1995) (Fourth Chapter 13 case filed on the eve of foreclosure sale “appears to be financially impossible . . . utterly unrealistic.” Payments are dependent upon financial assistance from family members. “It is incumbent on the debtor to satisfactorily establish that the contributions are sufficiently ‘stable and regular’ to enable the debtor to make payments under a Chapter 13 plan. . . . ‘[A]s a general proposition, gratuitous payments to a [Chapter 13] debtor by his relatives do not constitute regular income,’ although there may be unique circumstances when family contributions may be reliable enough . . . . [I]t is uniformly held that unsubstantiated expectations of financial contributions from family members or other third parties are not sufficient to meet the feasibility requirement for confirmation. . . . This is particularly so where there is a history of four and a half years of default, a foreclosure judgment, four scheduled foreclosure sales forestalled by four bankruptcy filings and a fifth foreclosure sale which was completed, without one dollar of financial aid to pay the mortgage from either family or friend. No financial undertaking from any family member was offered in evidence and no family member appeared at the hearing . . . to testify as to his or her willingness to help.”); In re Norwood, 178 B.R. 683, 691 (Bankr. E.D. Pa. 1995) (Plan is not feasible that depends on gratuitous contributions from debtor’s mother and sister when debtor failed to produce evidence “such as by sworn affidavits or testimony . . . demonstrating that they have the requisite commitment and ability to provide the funding to him on a consistent basis for the duration of the amended plan.”).
15 See discussion of income deduction orders beginning at § 125.1 Order to Debtor’s Employer. See, e.g., In re Bellinger, 179 B.R. 220, 222 (Bankr. D. Idaho 1995) (Modified plan is feasible where debtor failed to make postconfirmation mortgage payments directly to the mortgage holder, debtor “candidly admits that although she has the income to make the payments she is psychologically incapable of saving her money from her first bi-monthly check to meet her obligations later in the month,” and the proposed modification would pay mortgage with automatic deductions from the debtor’s income through the Chapter 13 trustee.).
16 See, e.g., Oglesby v. Associates Nat’l Mortgage Co. (In re Oglesby), 150 B.R. 620 (Bankr. E.D. Pa. 1993) (Court rejects feasibility challenge in debtor’s fourth Chapter 13 case, notwithstanding failure to make payments in prior cases and notwithstanding that debtor has defaulted in payments between the filing and the hearing on confirmation in fourth case. Court recalculates debtor’s budget to resolve disputes about the budget in favor of the debtor, including deletion of a $500-per-month student loan payment on the basis that the debtor “expects” to obtain a deferment. Creditor’s argument that debtor and her 13 dependents should be required to seek less expensive housing than the proposed monthly payment of $1,107.78 is rejected. Court conditions confirmation on debtor’s agreeing not to default in payments under the plan during the first 24 months without curing any such default within 20 days of notice of default and agreeing that in the event of an uncured material default, the case will be dismissed with prejudice to refiling within 180 days of dismissal “except by express permission of the courts.”).
17 See, e.g., In re Haskell, 252 B.R. 236, 244 (Bankr. M.D. Fla. 2000) (“Debtor lists disposable income of $3,932.00 per month, yet Debtor’s most recent Chapter 13 plan proposes monthly payments ranging from $4,700.00 to $6,000.00. Debtor failed to present any credible evidence that he would earn enough to cover these plan payments. Rather, Debtor testified that summer was a good time for business. The corresponding decrease in revenue after the summer boating season does not support feasibility of Debtor’s plan. Under the current proposed plan, Debtor’s payments increase substantially just as his projected business revenues taper off.”); In re Ross, 231 B.R. 635 (Bankr. S.D. Ohio 1999) (Plan is not feasible because debtors’ income from farming is not sufficient to pay family living expenses and make the payments proposed by the plan. Past performance evidenced by tax returns indicated that future performance of farming operation would not produce enough income to fund the plan. The debtors’ grain price projections were “overly optimistic” and the debtor had not explained how he would handle tax liability from under reporting of income in previous years.); In re Keach, 225 B.R. 264, 267 (Bankr. D.R.I. 1998) (Plan is not feasible that proposes payments of $700 per month based on income from business, but to produce $700 per month, business must increase by 37%. No showing how or why business would increase by 37% or how expenses might be reduced to make the plan feasible.); In re Truxon, 71 B.R. 28 (Bankr. D. Del. 1987) (Increased rental income from debtor’s wholly owned business is too speculative to support feasibility of plan.). See also In re Lane, 215 B.R. 810, 814 (Bankr. E.D. Va. 1997) (Plan not feasible that depends on use of vehicles titled to corporation. Debtor’s wholly owned corporation owned two trailers and a tractor. Plan proposed full payment of creditors secured by the vehicles. A month after filing, debtor voluntarily dissolved the corporation. Under Virginia law, the debtor became a fiduciary obligated to liquidate the assets of the corporation for the benefit of the corporation’s creditors. The debtor had no legal or equitable interest in the vehicles, and “as the Debtor cannot use the vehicles to fund her Chapter 13 plan, it is apparent that she will be unable to make all payments under the plan as required by § 1325(a)(6). The plan is consequently infeasible and cannot be confirmed.”).
18 See, e.g., Federal Nat’l Mortgage Ass’n v. Ferreira (In re Ferreira), 223 B.R. 258, 262 (D.R.I. 1998) (Slight deficit in budget does not render findings of feasibility clearly erroneous. Budget showed expenses when combined with plan payments exceeded monthly income by $17. Debtor operated a barber shop and rented apartment units, and “income fluctuates based on the volume of business at the barber shop and the number of vacancies in the rental units.” “[A] plan showing a small deficit between current income and expenses may be feasible if there is a reasonable likelihood that the debtor’s income will increase or that his expenses will diminish.”); In re Kessler, 86 B.R. 134 (Bankr. C.D. Ill. 1988) (Feasibility established notwithstanding that debtors’ cow-calf operation loses money. Debtors have employment income from other sources.); In re Robertson, 84 B.R. 109 (Bankr. S.D. Ohio 1988) (Funding of the plan depends on income from a partnership in which the debtor is a partner. Partnership is an ongoing business, equipment necessary to operation of the partnership is in good condition and is well maintained and payments can be made from the revenues of the partnership.); In re Hines, 64 B.R. 684 (Bankr. D. Colo. 1986) (Debtor’s plan is feasible when evidence indicates orchard operation is well maintained and could produce sufficient profit to fund plan although historically the orchard has not produced such income.); In re Fiegi, 61 B.R. 994 (Bankr. D. Or. 1986) (Plan of farm debtor proposing annual payments is feasible when only evidence presented was debtor’s explanation of her ability to manage and operate the farm.); In re Schyma, 68 B.R. 52 (Bankr. D. Minn. 1985) (Although the debtor’s horse-breeding operation produces a net loss, it does provide substantial deductions that may be reflected in the debtor’s tax refunds. Feasibility of debtor’s plan may depend on future decision to abandon horse breeding, but the plan is not obviously beyond feasibility at its inception.).
19 See Chelsea State Bank v. Wagner (In re Wagner), 259 B.R. 694, 700–01 (B.A.P. 8th Cir. 2001) (Debtor’s testimony that $20,000 balloon payment would be made at end of three-year plan with help from father was sufficient to prove feasibility. “A plan is not infeasible per se because a debtor proposes a lump sum payment. . . . Unless the debtor shows proof that he will be able to pay the balloon payment at the time it comes due, confirmation of a plan with a balloon payment is suspect. . . . A definite declaration as to the source and the amount of funds necessary to enable the debtor to make the plan payments is required. . . . [C]ourts look to a number of factors. The factors include the future earning capacity and disposable income of the debtor, whether the plan provides for payment of interest to secured creditors, the debtor’s perseverance and motivation to execute the plan successfully, the type of employment in which the debtor is engaged or may become engaged, whether the plan includes a cushion for unexpected expenses, the equity in the property, whether the plan provides for recurring charges against the property, and whether the plan provides for payments to the creditor which will significantly reduce the debt and enhance the prospects for refinancing at the end of the plan. . . . John Wagner testified that [his father] would assist the Debtors in making the balloon payment. . . . Because John Wagner’s testimony was the only evidence presented on the subject of the Father’s ability and willingness to assist the Debtors with making the balloon payment, the court’s finding was not clearly erroneous.”); First Nat’l Bank of Boston v. Fantasia (In re Fantasia), 211 B.R. 420, 423, 424 (B.A.P. 1st Cir. 1997) (Bankruptcy court erred in confirming balloon payment plan over feasibility objection without conducting evidentiary hearing. Debtors’ plan called for a balloon payment of $600,000 claim in 60th month. Bankruptcy court “held a non-evidentiary hearing” to consider mortgage holder’s objection and “after some discussion” confirmed the plan. “[I]nclusion of a balloon payment is not dispositive of a plan’s feasibility. Confirmation of such a plan is suspect, however, unless some proof is offered to show that the funds will be available at the time the balloon payment is due. . . . [D]ebtors must show by definite and credible evidence that they will have the financial ability to make the balloon payment. . . . [M]ere speculation as to the source of funds is not sufficient.” Citing six factors from In re Brunson, 87 B.R. 304, 312 (Bankr. D.N.J. 1988), “debtors have failed to meet their burden by showing that they would have funds available to make the balloon payment.”); United States v. Rader, No. TH01-217-C-T/H, 2002 WL 1354714, at *2 (S.D. Ind. Apr. 17, 2002) (unpublished) (Finding of feasibility was clearly erroneous because debtor failed to present any evidence that three balloon payments could be made. “Although plans requiring balloon payments are not necessarily unfeasible, courts view such plans with suspicion unless the debtor can show through definite and credible evidence that he will have the financial ability to make the balloon payment. . . . Debtor proposed a plan calling for . . . balloon payments of $30,800 in the twenty-fourth and thirty-sixth months, and a final payment of $126,000. . . . [B]y his own testimony, he only has $120,000 in definite assets with the promise of two more settlements. This is simply insufficient to establish that Rader will be able to make all the payments under the Plan.”); In re Endicott, 157 B.R. 255 (W.D. Va. 1993) (Case was remanded for findings of fact on feasibility when plan called for balloon payment of $31,000 five years after confirmation. Debtor was “not able to describe his prospects for refinancing,” thus record was empty of evidence to support bankruptcy court’s determination that the debtors could obtain refinancing after five years.); In re Hendricks, 250 B.R. 415, 421–22 (Bankr. M.D. Fla. 2000) (Plan not feasible because debtor failed to prove ability to make a large balloon payment in the 36th month. “[T]he Debtor provided no definite and credible evidence that she could obtain the funds to make her balloon payment. Although she does own her home free and clear of liens, the Debtor has no stream of future income to convince any reasonable lender to advance the funds . . . . [E]ven if such a loan was possible, the Debtor’s husband, as a co-owner, must consent . . . . The husband . . . failed to testify that he would consent to such a use and nothing in the record indicates he willingly would relinquish his interest in the home. The Debtor has failed to prove she could make this large payment at the end of her case.”); In re McNichols, 249 B.R. 160 (Bankr. N.D. Ill. 2000) (Plan that requires the debtor to pay a $44,500 secured claim in the 36th month fails feasibility test.); In re St. Cloud, 209 B.R. 801, 810 (Bankr. D. Mass. 1997) (Balloon payment in 60th month of $47,000 to retire home mortgage is feasible, applying In re Brunson, 87 B.R. 304 (Bankr. D.N.J. 1988) factors. “According to the Debtors’ expert witness, in five years the Debtors’ application for financing in the sum of the balloon payment likely will receive favorable consideration . . . . [T]he value of the Property will appreciate . . . . In five years, the Property will be worth at least, and probably more than, its current value . . . . [T]he loan to value ratio may be as high as 57 percent . . . . [T]he Debtors’ future earning capacity is stable. . . . No evidence of any extraordinary expenses.”); In re Harris, 199 B.R. 434, 436–37 (Bankr. D.N.H. 1996) (Balloon payment of $48,792 at the end of a 60-month Chapter 13 plan is not feasible. Applying the six factors from In re Brunson, 87 B.R. 304, 312 (Bankr. D.N.J. 1988), “[t]he Court finds, after reviewing the facts of this case, that the Debtor’s plan is too speculative and, therefore, not feasible. . . . Debtor provided no evidence that he has a relationship with a bank that would be willing to finance the balloon payment. . . . [T]he Debtor’s property lacked equity . . . . [T]he Debtor offered no evidence showing a change in future income.”); In re Felberman, 196 B.R. 678, 687–88 (Bankr. S.D.N.Y. 1995) ($68,573 balloon payment in the 60th month “is an insuperable barrier to confirmation . . . . Relevant case law provides no support for balloon payments in circumstances such as those presented here, i.e., plans requiring the payment of a large sum at the end with no source of funding for the payment in sight.”); In re Gregory, 143 B.R. 424, 426 (Bankr. E.D. Tex. 1992) (Proposal to sell homestead during the 36-month duration of the plan and to use equity to pay the IRS its $39,166.77 claim in a lump sum satisfies the feasibility test. “[T]he inclusion of a balloon payment scheme in a plan is not dispositive of a plan’s feasibility. Instead, a bankruptcy court must consider the propriety of the balloon payment under the totality of the circumstances. . . . Debtor’s home is valued at an amount in excess of $200,000 and is unencumbered. . . . Debtor’s proposal to fund their plan, based in large part on a balloon payment to the IRS, is not so speculative under the circumstances as to render their plan unconfirmable.”); In re Groff, 131 B.R. 703, 708, 709 (Bankr. E.D. Wis. 1991) (Court confirmed plan calling for balloon payment of $18,000 mortgage in 60th month. Mortgage was not protected from modification by § 1322(b)(2) because of security interest in real property other than debtor’s principal residence. Debtor proposed to reamortize the mortgage over 20 years, to make monthly payments under the plan for 59 months and then to pay the balance of $18,000 in the 60th month. Although debtors’ budget was very tight and there was no obvious way debtors would accumulate $18,000 for payment in the 60th month, court credited testimony of the president of a bank that the bank “would be willing to finance a loan to satisfy the balloon when it becomes due if [the bank’s] underwriting standards were met.” The court found that this commitment from the bank was “not illusory.” Debtors were in good health, were employed, were especially frugal. Debtors canned vegetables grown in their own garden and picked fruit from trees located on their property. “[T]he court is impressed by the debtors’ family lifestyle, resiliency and sheer determination.” The debtors “will be hard pressed to make the plan payments while also maintaining their living expenses. It will be a struggle, but it is not insurmountable.”); In re Brunson, 87 B.R. 304, 311 (Bankr. D.N.J. 1988) (Court denies confirmation on feasibility grounds of plan proposing to pay $1,000 per month for 59 months to the holder of a prepetition foreclosure judgment and then the balance, approximately $21,000, “presumably by refinancing, in the sixtieth month. . . . A plan that depends on the receipt of funds from unidentified and uncertain sources during the last month of a sixty-month plan must be scrutinized carefully.”); In re Schenk, 67 B.R. 137 (Bankr. D. Mont. 1986) (Plan proposing to distribute more than $18,000 to unsecured claim holders in the 60th month cannot be confirmed when the debtor’s estimate of income and expenses does not support the accumulation of such amount and the debtor fails to prove with reasonable certainty that the payment will be possible.).
20 87 B.R. 304 (Bankr. D.N.J. 1988).
21 In re Harris, 199 B.R. 434, 436–37 (Bankr. D.N.H. 1996). Accord Chelsea State Bank v. Wagner (In re Wagner), 259 B.R. 694 (B.A.P. 8th Cir. 2001); First Nat’l Bank of Boston v. Fantasia (In re Fantasia), 211 B.R. 420 (B.A.P. 1st Cir. 1997); In re St. Cloud, 209 B.R. 801 (Bankr. D. Mass. 1997).
22 See, e.g., In re Scott, No. 98-1866, 1999 WL 644380 (6th Cir. Aug. 13, 1999) (Table decision at 188 F.3d 509) (Affirms denial of confirmation and dismissal of Chapter 13 plan filed by incarcerated debtor based on lack of feasibility. Plan proposed to pay $100 per month, but statement of financial affairs indicated no employment or other source of income.); In re Crowder, 179 B.R. 571, 574 (E.D. Ark. 1995) (Debtor does not have regular income and is not eligible, and the plan is not feasible because debtor is incarcerated and the only regular source of income is a social security payment intended for the debtor’s minor son. The debtor failed to prove that she had rental income sufficient to fund the plan and failed to prove that her father could make voluntary contributions sufficient to fund a plan. That the debtor will be incarcerated for at least another two years demonstrates “there are no prospects that she can be employed and thereby acquire regular and stable income.”); In re Dorf, 219 B.R. 498, 501–02 (Bankr. N.D. Ill. 1998) (“Congress intended for postpetition alimony, maintenance and support to be paid from post-petition income. Payment of these post petition obligations is an integral part of the debtors [sic] duty to support his or her dependants and must be weighed by courts in determining the debtor’s ability to comply with the plan. . . . [H]e cannot both comply with his Plan and meet current obligations. He can only afford $2,669 after paying for personal needs, and that is enough only to pay the pre-bankruptcy arrearage, leaving nothing to make the post-bankruptcy monthly maintenance of $3,300. . . . It is clear that Debtor is financially unable to produce a confirmable plan as he cannot maintain the proposed Plan payments as well as the post-petition payments as they come due.”); In re Ennis, 178 B.R. 189 (Bankr. W.D. Mo. 1995) (Plan cannot be confirmed where payments are dependent upon an inheritance that is subject to a lien in favor of the debtor’s ex-spouse, and relief from the stay has been granted to permit ex-spouse to foreclose on the inheritance.); In re Huber, 80 B.R. 531 (Bankr. D. Colo. 1987) (Plan fails feasibility requirement of § 1325(a)(6) because it does not provide for payment of a nondischargeable child support obligation.); Circle Management Servs., Inc. v. Wright, 36 B.R. 663 (Bankr. S.D. Ohio 1984) (Plan is not feasible when debtor proposes to compromise a large state criminal restitution order and the threat of revocation of probation by the state criminal court is not resolved.).
23 236 B.R. 390 (Bankr. E.D. Wis. 1999).
24 Pfalzgraf arose in a community property state where Dennis’s child had a claim against Kathleen’s and Dennis’s community property.
25 The conditions for priority of a support claim are discussed in §§ 99.1 [ What Claims Are Priority Claims? ] § 73.2 What Claims Are Priority Claims? and 301.1 [ Alimony, Maintenance and Support in Cases Filed after October 22, 1994 ] § 136.20 Alimony, Maintenance and Support in Cases Filed after October 22, 1994.
26 See § 9.11 [ Income from Leasing, Selling or Liquidating Assets ] § 12.11 Income from Leasing, Selling or Liquidating Assets.
27 See Bass v. Fillion (In re Fillion), 181 F.3d 859 (7th Cir. 1999) (Plan to sell a portion of farm to pay creditors is feasible because debtor prevails in separate adversary proceeding with respect to ownership of the land.); In re Anderson, 28 B.R. 628, 629 (S.D. Ohio 1982) (Court affirms confirmation of plan calling for liquidation of debtors’ acreage notwithstanding finding that plan “is contingent upon a sale of real estate under market conditions which, in recent months, are far from ideal.”); In re Stanley, 296 B.R. 402 (Bankr. E.D. Va. 2002) (Plan contingent on selling 50 acres of land at a price sufficient to pay off lienholder is too speculative to satisfy § 1325(a)(6) when the debtor fails to prove a reasonable likelihood that a suitable purchaser will be found.); In re Newton, 217 B.R. 1002, 1004 (Bankr. S.D. Ohio 1997) (In third Chapter 13 case dependent on sale or refinancing of a restaurant property, debtor failed to carry strict burden of proof that sale or refinancing would occur. “[W]here refinancing or sale of real property is proposed after the end of a lease term, the debtor must show that the lessee’s operation is producing the cash flow sufficient to enable the payments to be made to the Trustee and that the sale or refinancing is likely to occur and in sufficient amounts to complete the plan. No such showing was made. Indeed, the debtor failed to produce the lease, any appraisal, or any records of the lessee’s operations which could be basis for determining the price at which the property could be sold. . . . In a third chapter 13 case dealing with a proposed sale of property which has failed to sell in two prior instances, this effort does not satisfy the debtor’s burden of proof on the feasibility issue.”); In re Lindsey, 183 B.R. 624, 628 (Bankr. D. Idaho 1995) (Plan is not feasible that proposes to pay nearly $450,000 from the liquidation of real property. “The property the debtor proposes to sell is distressed commercial property which the debtor has been unable to operate at a profit for over four years. The debtor has been attempting to sell the property for over one year since filing her petition. The plan does not specify the terms under which the debtor intends to market the property. Nor does the plan contain a default provision in the event the debtor fails to sell the property. In fact, although the plan provides sale is ‘anticipated’ within one year, it does not actually require sale within one year. . . . [T]he debtor’s testimony concerning her efforts to market the property were vague and often unresponsive.”); In re Erickson, 176 B.R. 753, 757–58 (Bankr. E.D. Pa. 1995) (Rejecting the per se approach of In re Proudfoot, 144 B.R. 876 (B.A.P. 9th Cir. 1992), and In re Gavia, 24 B.R. 573 (B.A.P. 9th Cir. 1982), “sale” plans are properly analyzed as feasibility questions, and the “commitments” described in In re Newton, 161 B.R. 207 (Bankr. D. Minn. 1993), are good guidelines. “The Debtors’ Instant Plan falls woefully short of making the ‘commitments’ recited in Newton. The Plan fails to specify the terms of its listing for sale. It makes no statement regarding remedies accorded to the secured creditors [if] the projected sale is unsuccessful. . . . The Plan states no terms of, and no time period for, the contemplated sale. . . . [T]here is little prospect of an imminent sale at a price sufficient to pay off even the Debtors’ secured creditors. The realty has failed to elicit an offer which the Debtors have deemed acceptable after a year on the market, and the Husband presented no evidence of any dramatic events likely to change the bleak status quo.”); In re Gregory, 143 B.R. 424 (Bankr. E.D. Tex. 1992) (Debtor’s proposal to sell homestead during a 36-month plan and to use the equity in the homestead to pay the IRS is feasible when debtor proved that the home was worth in excess of $200,000 and was unencumbered.); In re Seem, 92 B.R. 134 (Bankr. E.D. Pa. 1988) (Debtor’s proposal to cure default in real estate mortgage by liquidating estate property is too speculative.); In re Hogue, 78 B.R. 867, 872 (Bankr. S.D. Ohio 1987) (Debtors failed to prove that sale and/or refinancings of real property were reasonably likely to occur at the times necessary to complete funding of the proposed plan. Court expresses skepticism whether the debtors could have presented any evidence sufficient to “overcome the court’s serious doubts concerning the feasibility of a Chapter 13 plan whose success depends entirely upon the occurrence of a contingency scheduled to occur some three to five years from the plan’s inception.”); Nantz v. Centerre Bank of Pac. (In re Nantz), 75 B.R. 617 (Bankr. E.D. Mo. 1987) (Court denies confirmation on feasibility grounds of plan calling for sale of debtor’s property when real property is embroiled in a rezoning controversy.); In re Tucker, 34 B.R. 257 (Bankr. W.D. Okla. 1983) (Plan calling for sale of debtor’s assets is not feasible where debtor failed to prove likelihood of successful sales.).
28 161 B.R. 207 (Bankr. D. Minn. 1993).
29 161 B.R. at 217–18.
30 See § 196.1 [ Income, Expenses, Lifestyle and Luxuries ] § 108.4 Income, Expenses, Lifestyle and Luxuries.
31 See § 165.1 [ Reasonably Necessary for Maintenance or Support ] § 91.3 Reasonably Necessary for Maintenance or Support.
32 See In re Binder, 224 B.R. 483 (Bankr. D. Colo. 1998) (That the debtor’s budget had no cushion and was “noticeably tight” and the debtor projected “unusually low expenses for a family four” were factors indicating that proposed mortgage cure over 52 months was not feasible.); In re Erbaugh, 199 B.R. 367, 369 (Bankr. S.D. Ohio 1996) (That the debtor “will have no income to cover any type of unexpected or emergency expenses” is one factor in support of finding that plan is not feasible under § 1325(a)(6).); In re Greer, 60 B.R. 547, 553 (Bankr. C.D. Cal. 1986) (A $75 cushion or reserve for contingencies may be required for compliance with § 1325(a)(6): “debtors in general have been cutting their budgets too thinly to be able to meet their postpetition obligations.”); In re Frey, 34 B.R. 607, 608 (Bankr. M.D. Pa. 1983) (Court rejects creditor’s argument that the plan fails to provide a “cushion against eventualities . . . unexpected contingencies such as: unemployment, disability and inflation.”).
33 60 B.R. 547 (Bankr. C.D. Cal. 1986).
34 See, e.g., Pletz v. United States (In re Pletz), 221 F.3d 1114 (9th Cir. 2000) (Bankruptcy court properly denied confirmation on feasibility grounds because debtor’s interest as tenant by the entirety, when properly valued using joint-life actuarial tables, exceeded the debtor’s ability to pay the IRS as a lienholder.).
35 See § 102.1 [ Surrender or Sale of Collateral ] § 74.5 Surrender or Sale of Collateral before BAPCPA.
36 270 B.R. 737 (Bankr. N.D. Iowa 2001).
37 270 B.R. at 741–42.
38 Nos. WO-01-094, 01-01264, WO-01-095, 01-1269, 01-16780, 2002 WL 924619 (B.A.P. 10th Cir. May 8, 2002) (unpublished).
39 2002 WL 924619, at *8.
40 2002 WL 924619, at *8.