In Re Hockenberry
457 B.R. 646
Bankr. S.D. Ohio2011Background
- Debtor filed Chapter 11 with Cadles as the sole unsecured creditor ( ~$989k claim).
- Debtor’s Amended Plan pays Cadles $10,000 over eight years with no interest, seeking to satisfy §1129(a)(7).
- Plan treats secured mortgage and auto creditors as current/impaired and pays them in full or as proposed; priority claims estimated at $6,000.
- Debtor’s liquidation analysis estimates Cadles would receive $9,519 in a Chapter 7 liquidation; Plan present value to Cadles is disputed.
- Courts must determine present value using a discount rate that accounts for time value of money and risk in an insolvent estate; here the rate is contested.
- Court denied confirmation, finding the plan fails both the best-interests of creditors test and feasibility.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Best-interests of creditors (1129(a)(7)) satisfied? | Cadles argues plan undervalues its claim. | Hockenberry argues the plan provides sufficient value. | Not satisfied; present value of Cadles’ payment stream is less than Chapter 7 recovery. |
| Feasibility (1129(a)(11)) satisfied? | Cadles contends feasibility is possible with funding. | Debtor cannot prove funding is available or reliable. | Not feasible; plan unlikely to be funded and payments cannot be sustained. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (establishes discounting of deferred payments to present value under 1129(a)(7) and related provisions)
- In re Am. HomePatient, Inc., 420 F.3d 559 (6th Cir. 2005) (recognizes lack of an efficient market and supports formula approach for rate setting in Chapter 11)
- In re Brice Road Devs., L.L.C., 392 B.R. 274 (6th Cir. BAP 2008) (discusses rate adjustments and burden on debtor to justify rate under Till framework)
- Cardinal Fed. Sav. & Loan Ass'n v. Colegrove (In re Colegrove), 771 F.2d 119 (6th Cir. 1985) (present value discounting principle for best-interests test in Chapter 11/13 contexts)
- In re Smith, 431 B.R. 607 (Bankr. E.D.N.C. 2010) (utilizes federal judgment rate discussion in specific unsecured/solvent contexts)
- In re G-I Holdings Inc., 420 B.R. 216 (D.N.J. 2009) (discusses Till formula approach in corporate/complex plan contexts)
- In re Hoskins, 405 B.R. 576 (Bankr. N.D.W. Va. 2009) (notes applicability of discount rate methodologies in solvent/insolvent scenarios)