The Debtor, a limited liability company claiming to be a “family farmer,” filed for protection under Chapter 12 to stop a foreclosure on the Debtor’s dry land ranch by its sole secured creditor. The Debtor filed an initial Chapter 12 plan and then withdrew it. The case lagged. So, the secured creditor filed a motion to dismiss pursuant to 11 U.S.C. § 1208(c) for unreasonable delay, gross mismanagement, and continuing loss to or diminution of the estate. The secured creditor also argued that the Debtor was ineligible to obtain relief under Chapter 12 pursuant to 11 U.S.C. § 109(f). The Debtor contested dismissal and filed an amended Chapter 12 plan proposing a “dirt-for-debt” transfer of part of its dry land ranch to the secured creditor. The secured creditor and the Chapter 12 Trustee objected to confirmation. The Court conducted a combined evidentiary hearing on confirmation and dismissal.
The Court determined that the Debtor was eligible to file for protection under Chapter 12 To reach its conclusion, the Court engaged in a detailed analysis of the Chapter 12 eligibility statute coupled with other Bankruptcy Code provisions defining the terms “farmer,” “family farmer” (as applicable to corporations), and “family farmer with regular annual income.” Factually, the Debtor satisfied the eligibility criteria. Thereafter, the Court assessed confirmation issues and ultimately determined that the amended Chapter 12 plan could not be confirmed because: (1) the amended Chapter 12 plan was internally contradictory, unclear, and ambiguous; (2) the Debtor failed to establish that its proposed treatment of the secured creditor satisfied the “cram down” requirements of 11 U.S.C. § 1225(a)(5)(B); and (3) the Debtor otherwise failed its confirmation burdens under 11 U.S.C. § 1225(a).
Thereafter, the Court addressed dismissal. Based upon the facts, the Court concluded that the Debtor’s case should be dismissed under 11 U.S.C. §§ 1208(c)(1) and (9). The Court determined that the Debtor had engaged in unreasonable delay and committed gross mismanagement by failing to comply with basic Bankruptcy Code reporting and administration requirements as well as by transfer of most of its income to a related entity for no consideration. The Court also found that the Debtor had suffered continuing losses during the bankruptcy case with no reasonable likelihood of rehabilitation. The Court dismissed the bankruptcy case.