My Chapter 13 plan doesn’t meet the Feasibility Test – what does this mean?

18 Sep My Chapter 13 plan doesn’t meet the Feasibility Test – what does this mean?

The debtor files a Chapter 13 and can’t afford to pay the amount necessary each month to make his plan payments. But the debtor does have some land that he can sell that will pay a substantial amount of his plan base. So what does the debtor do? He proposes small payments during the first 59 months of his Chapter 13 plan and then a large balloon payment for the 60th month. The funds to pay the balloon payment will come from the sale of the land. But the Judge denies confirmation of the plan because she doesn’t believe the plan meets the Feasibility Test.

Section 1325(a)(6) of the Bankruptcy Code requires that “the debtor will be able to make all payments under the plan and to comply with the plan.” If the plan does not meet this feasibility standard, the court may deny confirmation. In other words, the debtor’s property and budget must show sufficient income to make the proposed payments.

Back to the example above, – the land happens to be swampland. The probability of this land selling during the five years of the plan is highly unlikely.Therefore, in order for the debtor to get his plan confirmed, he will have to have the ability to make the larger monthly plan payment.

Another example of a plan not being feasible is when a debtor listsexpenses that are so low that they are unrealistic for that family to be able to survive. For instance, the debtor’s family consists of debtor, debtor’s wife, three teen-age sons, and two other children – for a total of seven people. He states his food expense as $300.00 per month, clothing $0, medical $0, gasoline $50.00, no educational or children activites expense,haircuts $0, etc. The court is not going to approve this plan as the debtorneeds the money that would go to the Chapter 13 trustee just so the family can survive.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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