Summary of a Recent
Judicial
Development in
Bankruptcy
Chapter 12 Debtor is Given Benefit of the Doubt Regarding Feasibility
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Hermesch Entities I, No. 06-80342, 2007 Bankr. LEXIS 900 (Bankr. E.D. Okla. Mar. 13, 2007), the United States Bankruptcy Court for the Eastern District of Oklahoma held that a debtor's plan was feasible and approved an extended period of repayment of a creditor's claim.
Background
Debtors filed for Chapter 12 bankruptcy in June 2006, and Deere & Co. was their principal creditor. Id. at *2. One Debtor testified that 2006 was a disastrous year for crop harvesting due to drought in the Midwest, but he expected 2007 to be much better. Id. at *3. Deere objected to the Debtors' plan and argued that the plan was not feasible. Id. at *6. Deere's appraiser determined the wholesale value of the Debtors' farm equipment in which Deere had a secured interest to be $506,000 and the retail value to be $626,000, with an average value of $566,000. Id. at *8. The Debtors' plan valued Deere's security at $566,000, and Deere claimed that it should be $626,000. Id. at *7. The plan also proposed to pay Deere over a five-year period, which Deere claimed was not allowed. Id. at *6.
Arguments
Debtors argued that their plan was feasible, that their collateral was not undervalued, and that there was cause for extension of the three-year payment limit. Id.
Deere argued that the plan was not feasible because it proposed to pay Deere for a term of five years, and failed to distribute an amount equal to the allowed amount of Deere's claim. Id.
Analysis and Holdings
Section 1222(c) states that (subject to certain exceptions) a plan may not provide for payment beyond three years unless the court for cause approves a longer period up to five years. Id. at *7. The court approved the extended period of payments, and held that a payment term beyond three years was reasonable in this case. Id. at *8. Section 1225(a)(5) provides that the court shall confirm a plan if, with respect to each allowed secured claim provided for by the plan, "the plan provides that the holder of such claim retain the lien securing such claim" and "the value, as of the effective date of the plan, of property to be distributed by the trustee or the debtor under the plan on account of such claim is not less than the allowed amount of such claim." Id. at *7. The court agreed with the Debtor that the average value of the equipment, $566,000, should be the proper value used in the plan. Id. at *8. Furthermore, the court held that the Debtors' projections for 2007 appeared to have a sufficient factual basis and that the Debtors should be given the benefit of the doubt, and therefore declared that the plan was feasible. Id. at *9-11.
The case was decided on March 13, 2007.