## Facts

- Tim and Teri Kvamme (debtors) filed a Chapter 11 bankruptcy case.
- Over nearly two years, the debtors filed multiple proposed reorganization plans.
- At a hearing on the debtors’ third amended plan, the bankruptcy court warned the debtors they had only one more chance to propose a confirmable plan.
- The debtors then filed a fourth amended plan.
- Farmers Home Administration (FmHA) held a claim against the debtors for $174,234.72 and elected under 11 U.S.C. § 1111(b) to have its claim treated as a secured claim.
- The fourth amended plan proposed to pay FmHA based on the market value of FmHA’s collateral, including:
  - Cattle with a market value of $45,400, amortized over 15 years at 9% interest and paid in 15 annual installments of $5,632.27; and
  - Machinery with a market value of $5,600, amortized over seven years at 7% interest and paid in seven annual installments of $1,112.67.
- The total amount of payments proposed for the cattle and machinery equaled $92,272.74.
- FmHA objected to confirmation, arguing the plan did not implement its § 1111(b) election because the plan did not provide for payment of FmHA’s full allowed claim of $174,234.72.
- Another creditor moved to dismiss the Chapter 11 case based on the debtors’ failure to propose a confirmable plan after multiple attempts.

## Issues

1. After a secured creditor elects § 1111(b), may a Chapter 11 plan be confirmed over the creditor’s objection when the plan’s deferred payments total less than the creditor’s full allowed claim?
2. If the plan is not confirmable and the debtors have repeatedly failed to propose a confirmable plan despite a final warning, should the Chapter 11 case be dismissed for cause?

## Decision

- The court sustained FmHA’s objection to confirmation.
- The court denied confirmation of the debtors’ fourth amended plan because it did not provide for payments totaling at least the full amount of FmHA’s allowed claim following FmHA’s § 1111(b) election.
- The court granted the motion to dismiss, finding cause to dismiss the case in light of the debtors’ repeated failure to propose a confirmable plan after the court’s warning that the fourth plan would be their last opportunity.

## Legal Principles

- A secured creditor that makes a valid election under 11 U.S.C. § 1111(b) is treated, for plan purposes, as holding a secured claim in the full amount of its allowed claim, even if the collateral value is lower.
- Under the cramdown standard for secured claims in 11 U.S.C. § 1129(b)(2)(A)(i), treatment of an electing § 1111(b) creditor generally requires:
  - The creditor retains its lien; and
  - The plan provides deferred cash payments with (a) a present value at least equal to the value of the creditor’s interest in the collateral and (b) a total amount at least equal to the creditor’s full allowed claim.
- A plan that bases payments only on collateral value, and results in total payments below the electing creditor’s allowed claim, does not satisfy the requirements for confirmation over that creditor’s objection.
- Under 11 U.S.C. § 1112(b), cause to dismiss a Chapter 11 case can include the debtor’s inability to effectuate a plan, particularly where the debtor has had repeated chances and still cannot propose a confirmable plan.

## Conclusion

In re Kvamme held that once FmHA elected § 1111(b), the debtors could not confirm a plan over FmHA’s objection unless the plan provided payments totaling at least FmHA’s full allowed claim (and meeting the present-value requirement tied to collateral value). Because the fourth amended plan proposed total payments far below $174,234.72 and the debtors had already been warned they had one final chance to file a confirmable plan, the court denied confirmation and dismissed the Chapter 11 case for cause.


In re Kvamme, 93 B.R. 698 (1988)