11 U.S.C. Section 1190 - Subchapter V Plan Contents

What Section 1190 Does

Section 1190 lists the items that a Subchapter V plan must contain in addition to whatever items would otherwise be required by Section 1123. Because Section 1181(b) exempts Subchapter V from the disclosure-statement requirement of Section 1125, the plan itself must carry the disclosure burden. Section 1190 is the statutory mechanism by which Congress shifted that burden onto the four-corners of the plan document.

Practitioners therefore treat the Subchapter V plan as a hybrid: it is both the operative legal instrument that will bind creditors and the disclosure document that explains the debtor's circumstances. The Section 1190 mandatory contents are the floor; courts in every district expect plans to be drafted to the standard a disclosure statement would meet in ordinary Chapter 11, with the substantive provisions integrated.

Section 1190(1): Brief History of Operations

The first mandatory element is a brief history of the business operations of the debtor. The history must cover enough ground to allow creditors to evaluate the debtor's narrative of the financial distress that led to the filing, the operational adjustments made (or proposed), and the realism of the projections. Three substantive components are conventional: (a) the formation history and a sketch of the business model; (b) a chronology of the events leading to the petition - typically including key macroeconomic, customer, supplier, or regulatory shifts; and (c) post-petition operating changes already implemented that support the feasibility narrative.

Plans that skimp on the history section invite trustee objection and creditor scrutiny. The history is the rhetorical foundation for the projections; if it is thin or implausible, the projections will not be credited.

Section 1190(2): Liquidation Analysis

The second element is a liquidation analysis showing what each holder of a claim would receive if the estate were liquidated under Chapter 7. This is the statutory anchor for the best-interests-of-creditors test under Section 1129(a)(7), which Subchapter V incorporates by reference through Section 1191(a). Each creditor in an impaired class must receive under the plan at least what that creditor would receive in a Chapter 7 liquidation.

How to Build the Liquidation Analysis

The conventional methodology is a top-down asset table: gross liquidation value of each significant asset, less Chapter 7 trustee compensation under Section 326, less professional fees and selling costs, less secured claims by collateral, less administrative expenses, less priority claims, with the residual divided pro rata among general unsecured claims. The analysis should disclose the valuation methodology for each asset class - orderly liquidation value for inventory, forced sale value for real estate, account-by-account collectability for receivables - and identify the source of each number.

Section 1190(2) requires the analysis to be a part of the plan, not merely an exhibit. Plans that bury the analysis or use vague summary numbers expose themselves to confirmation objection.

Section 1190(3): Financial Projections

The third element is projections with respect to the ability of the debtor to make payments under the proposed plan. The projections must be sufficient to demonstrate the feasibility finding required by Section 1129(a)(11) (which Subchapter V incorporates) and the reasonable-likelihood standard built into Section 1191(c) for cramdown cases. The conventional approach is a five-year projected income statement and cash flow statement, with stress-tested sensitivity analysis on revenue, cost of goods sold, and labor expense.

Projection Anchoring

Credible projections are anchored to the debtor's actual post-petition operating performance as reflected in monthly operating reports. Where projections diverge materially from MOR results, the plan should explain the divergence and identify the operational change that justifies it. Courts have rejected projections that assume a step-function improvement without a stated operational driver.

Disposable-Income Computation

For cramdown cases under Section 1191(b), the projections must also support the disposable-income computation of Section 1191(c)(2)(A) or the present-value distribution computation of Section 1191(c)(2)(B). In effect, the projections do double duty: they prove feasibility and they fix the disposable-income commitment.

Section 1190(3) (Final Clause): Residence-Modification Permitted

Subchapter V contains one of the most consequential individual-debtor provisions in modern bankruptcy law: an individual debtor may modify the rights of a holder of a claim secured only by a security interest in real property that is the debtor's principal residence, provided the new value received in connection with granting the security interest was used primarily in connection with the small business of the debtor. This provision overrides the anti-modification rule that applies in Chapter 13 under Section 1322(b)(2) and in ordinary Chapter 11 under Section 1123(b)(5).

The Business-Use Limitation

The modification right is not unlimited. It applies only when the loan proceeds secured by the residence were used primarily in connection with the small business. A standard purchase-money mortgage on a personal residence is not subject to modification; a home-equity loan whose proceeds were channeled into business operations is. The "primarily in connection with" language imposes a fact-specific tracing analysis on the use of proceeds.

Why This Matters

Many small-business owners financed their enterprises by encumbering personal real estate. The Chapter 13 anti-modification rule has historically left them with no in-bankruptcy mechanism to cram down such loans to the value of the collateral. Subchapter V's carve-out reopens that path, allowing modification under the cramdown standards of Section 1191(b) and (c).

Other Required Contents Under Section 1123

The Section 1190 mandatory contents are additive to the ordinary Chapter 11 plan-contents requirements of Section 1123(a), which Subchapter V does not override. The plan must therefore also designate classes of claims and interests, specify treatment of impaired and unimpaired classes, provide for adequate means of execution, and so on. Discretionary contents under Section 1123(b) - such as cure and reinstatement provisions, assumption or rejection of executory contracts, and retention or release of causes of action - are equally available in Subchapter V.

Related Bankruptcy Code Sections

Section 1190 operates in concert with several other provisions of the Bankruptcy Code:

• Section 1181 - Inapplicability of Section 1125 and other provisions
• Section 1123 - General plan contents
• Section 1125 - Disclosure statement (inapplicable in Subchapter V)
• Section 1189 - 90-day plan deadline
• Section 1191 - Subchapter V confirmation
• Section 1193 - Plan modification

A well-drafted Subchapter V plan integrates the Section 1190 mandatory contents with the Section 1123 general contents and the Section 1191 confirmation requirements into a single, self-contained document.