Gabiddon Builder proposed Subchapter V Plan in which it would sell the lot it owns and to use the net proceeds to pay creditors $10,000 each with the remainder of their claims to be paid over the balance of the Plan. Gabiddon Builders would then use the balance of the net proceeds to purchase a second lot and to build a 4,300 square foot house on that lot, from which it could then sell and use those proceeds to continue to fund the Plan.
The bankruptcy court, however, found that not only was there there is no evidence to support a conclusion that the sale of the Property is imminent based on the history of the proposed sale of the Property, but further that this suspected property flipping business model was the cause of Gabiddon's bankruptcy itself.
Accordingly, not only was confirmation of the plan denied as infeasible, but the bankruptcy court ordered the case converted to Chapter 7 as liquidation of these assets was in the best interests of the creditors and the estate.
While Subchapter V has in it first year proven to be a popular means for small businesses to seek re-organization, that denial of confirmation resulted in neither a further opportunity to propose a plan nor dismissal of the case (leaving the debtor the chance of finding non-bankruptcy resolutions), but instead a conversion and liquidation, may give debtors reason to pause before selecting this type of bankruptcy.
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