Lack of Feasibility: The New Chapter 13 Wrinkle

Feasibility issues. The Chapter 13 Trustee for the Cleveland division of the bankruptcy court has increasingly been filing motions to dismiss confirmed chapter13 cases. The latest issue: the plan is not feasible. What on earth does this mean? For a plan to be confirmed in a chapter 13 case a few things must occur:

File a plan
Fund the plan
Plan must be feasible
1. Plan addresses all classes of scheduled creditors
2. All disposable income is committed to the plan
3. Plan will be completed within 3 to five years, unless unsecured creditors will be paid in full in which case it can be under 3 years.

The plan has been confirmed between one and three years. You have been faithfully making all the plan payments on time and in full. You have been making all of your other payments no matter the sacrifice. Out of the blue your attorney gets a letter from someone in the trustee’s office. It says the plan is not feasible because it will not complete within 5 years. No further explanation.

What causes a plan to not be feasible? At the time of confirmation the time frame for filing proofs of claim has not yet passed. That is normally 6 months after the notice of filing the chapter 13 case goes out. Often one or more creditors file proofs of claim in an amount so far over the amount in the plan, that to pay it, the case will take more than the 5 year maximum. Sometimes a creditor will overstate what it is due. Sometimes the claim includes improper items. Sometimes the claim is accurate, but the amount you gave you bankruptcy attorney to put in the plan is severely understated. Bottom line: the plan will not work.

Steps to take if faced with action to dismiss for lack of feasibility

What to do if a feasibility issue arises:

Analyze the claims to see if one or more are too large
Object to improper claims
If a Motion to Dismiss for Lack of Feasibility is filed, normally by the Trustee
1. Object to the motion, otherwise it can be granted without a hearing
2. Object to the claims in question
3. If claims are proper amend plan
4. If you can’t amend the plan
  1. Convert to Chapter 7 if you can
  2. Do nothing and let the cae be dismissed, with an eye to refiling another chapter 13. With priority claims paid and crediting amounts paid to secured creditors, maybe a new plan in a new case will not suffer these issues.

I recently conferred with a person who just got notice the chapter 13 case was dismissed for lack of feasibility. It is your case. Do not assume that your bankruptcy attorney will automatically respond to the letter or even the motion to dismiss. If you do not hear from the attorney, call, write, do anything to get their attention. This is an issue that can be fixed. Doing nothing gets your case dismissed. It happens.

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Bill Balena

Bill Balena is a Cleveland Area Bankruptcy attorney with an office in Elyria, Ohio. Bill represents consumers in Chapter 7 and Chapter 13 cases. He is a former city prosecutor, and an accomplished criminal trial attorney. Bill also defends drunk driving cases, as well as driving related drug offenses.

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