Summary of a Recent
Judicial Development in
Bankruptcy

Court Looks at Projected Income and Expenses and
Past Performance to Determine Feasibility of a Plan

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In In re Kowalzyk, Bky. 06-60010, 2006 Bankr. LEXIS 2806 (Bankr. D. Minn. Oct. 24, 2006), the United States Bankruptcy Court for the District of Minnesota held that a debtor had failed to prove that his Chapter 12 plan was feasible, and therefore denied confirmation of his plan and dismissed his case.

Background

Debtor, a hog farmer, filed for Chapter 12 relief in January 2006 after losing several hogs to disease and theft. Id. at *2. He had entered into a new hog contract at the time of this case, which he claimed would provide him with adequate income to make the payments under his proposed plan. Id. at *4. Creditor Cenbank objected to the confirmation of his plan, alleging that the plan was not feasible. Id. at *1.

Arguments

Cenbank argued that the Debtor's plan was not feasible, and contested the accuracy of various income and expense figures he provided. Id. at *5, *11.

Debtor argued that there were sufficient facts to indicate that his future income would be adequate, and therefore his plan was feasible. Id. at *2, *3.

Analysis and Holdings

Section 1225(a)(6), also known as the "feasibility test," requires a debtor to show that he will be able to "make all payments under the plan" before his plan can be confirmed. Id. at *8. To determine whether a plan is feasible, the court looks at the debtor's projected income and expenses, compared to his past performance. Id. The court determined that the Debtor had failed to prove feasibility, because the lack of specificity and support for his future income projections rendered them unhelpful. Id. at *8. He also failed to provide records of past performance or detailed monthly expense analyses. Id. at *8, *11. Therefore the court denied confirmation of the Debtor's plan and dismissed his case. Id. at *13-14.

The case was decided on October 24, 2008.