The “Hope Plan” Problem, Why a Promised Refinancing Did Not Make a Chapter 11 Plan Feasible

Three Key Takeaways

• A chapter 11 plan that depends on a future refinancing must be supported by objective evidence that the refinancing will occur. Self‑serving testimony from the debtor’s principal that banks will lend once construction is finished is not sufficient.
• The senior lender objected that the plan was a “hope plan” because the debtor did not have approval of the funding needed to finish construction or a commitment for post‑confirmation financing. The bankruptcy court agreed, holding that the refinancing rested on “vague assurances” and that “potential” exits not included in the plan do not show feasibility.
• A single asset real estate debtor that does not make monthly interest payments to its secured lenders pursuant to section 362(d)(3) of the Bankruptcy Code relies entirely on its plan to keep the automatic stay in place. When confirmation was denied, the bankruptcy court held that section 362(d)(3) required termination of the stay.

A commercial developer whose construction lender stops funding a project often looks to chapter 11 for time to finish the work. The debtor’s business plan usually revolves around completing construction with new financing, eventually leasing the units, and refinancing the existing debt once construction is complete or the property begins producing income. However, these steps take time, which is at a premium in a chapter 11 case. The debtor’s plan, once in chapter 11, also often depends on take‑out financing or a sale that has not yet materialized (characterized as a “hope plan”), leaving the debtor to show that it is likely to occur.

A recent decision from the United States Bankruptcy Court for the Eastern District of North Carolina, In re Nova at Summer Meadow Owner, LLC, No. 25‑03953‑5‑PWM, 2026 WL 3126624 (Bankr. E.D.N.C. Oct. 19, 2026), shows how a bankruptcy court treats a plan whose only exit is a refinancing that no lender has committed to provide. In that case, the bankruptcy court denied confirmation of a single asset real estate debtor’s plan, in part because the debtor offered only its principal’s assurances that a refinancing or another exit would occur.

Section 1129(a)(11) and Section 362(d)(3) of the Bankruptcy Code

A debtor whose plan depends on a refinancing or a sale must demonstrate that the contingency is likely to occur, not merely that it is possible. Section 1129(a)(11) of the Bankruptcy Code provides that a plan may be confirmed only if “[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.” 11 U.S.C. § 1129(a)(11). A bankruptcy court will not confirm a plan that “is no more than ‘hope’ and is not a realistic prospect for a successful reorganization.” Nova, 2026 WL 3126624, at *13 (quoting In re Asheville Bldg. Assocs., 93 B.R. 913, 917 (Bankr. W.D.N.C. 1988)).

A single asset real estate case also complicates matters, as section 362(d)(3) imposes a deadline that, if missed, entitles a secured lender to relief from the automatic stay. Pursuant to section 362(d)(3) of the Bankruptcy Code, the bankruptcy court must grant a secured lender relief from the automatic stay unless, by the later of ninety days after the petition date or thirty days after the bankruptcy court determines that the case is a single asset real estate case, the debtor either: (a) files a plan that has a reasonable possibility of being confirmed within a reasonable time; or (b) begins monthly payments to each real estate lender equal to interest at the nondefault contract rate on the value of the lender’s interest in the property. A debtor that does not begin making interest payments is relying solely on its plan to keep the automatic stay in place.

The Debtor’s Stalled Project and Its Refinancing Plan

On October 7, 2025, Nova at Summer Meadow Owner, LLC (the “Debtor”) filed a chapter 11 petition. The Debtor owns land in Durham, North Carolina, on which it began constructing three apartment buildings. According to the Debtor, construction stopped when its senior lender, USC 433 Hebron, LLC (“USC”), declined to advance the funds needed to complete construction. USC asserted a first‑lien claim of approximately $10.5 million. UGro, LLC (“UGro,” and collectively with USC, the “Lenders”) asserted a second‑lien claim of approximately $3.4 million. The case was later designated a single asset real estate case by consent order.

In January 2026, the bankruptcy court approved on an interim basis an initial advance of $1.1 million of debtor‑in‑possession financing (the “DIP Financing”) from Southern Resolution Services, LLC (the “DIP Lender”), secured by a priming lien. The Debtor’s principal testified that the Debtor needed the full $3.5 million of requested DIP Financing to finish construction, but the Debtor’s request for the remainder of the DIP Financing would not be heard until the confirmation hearing.

On March 6, 2026, one day before section 362(d)(3) would have required relief from the automatic stay in favor of USC, the Debtor filed its plan of reorganization (the “Plan”). The Plan proposed to finish construction with the additional DIP Financing, lease the units to third parties, and refinance the debt once the project was fully complete. The Lenders would each be paid in full, with interest at 10%, on the earlier of July 1, 2027 or the first anniversary of the effective date, but no payments would be made before then. The Plan’s only description of the refinancing was that, “based upon its prior discussions with various financial institutions,” the Debtor anticipated obtaining financing to pay all allowed claims in full once construction was complete. Nova, 2026 WL 3126624, at *10.

The Lenders voted to reject the Plan. The bankruptcy court held a combined hearing on confirmation, USC’s motion for relief from the automatic stay, and the Debtor’s request for a second DIP Financing advance.

USC’s Objection and Motion for Relief from the Automatic Stay

When the Debtor sought confirmation, it did not have sufficient funds to finish construction or a lender committed to refinance the project once it was finished. USC called the Plan a “hope plan” for those reasons. Id. at *13.

At the hearing, the Debtor’s principal testified that numerous banks would provide a “mini‑perm” loan and that he had “market feedback” on the terms the Debtor could obtain once the project received a certificate of occupancy. Id. at *14. However, the Debtor’s principal acknowledged that the Debtor had no binding term sheets. As is often the case, potential refinancing partners would not commit funds until construction was complete. The Debtor’s principal also described other “potential exits,” including a sale of the property or a contribution from himself and other investors to cover the plan payments. Id. None of these alternatives was concrete or binding and none of these potential alternatives were included in the Plan.

Given those circumstances, USC objected to confirmation on the grounds, among others, that the Plan was not feasible and was not fair and equitable to the Lenders. USC also moved for relief from the automatic stay pursuant to section 362(d)(3), which turned on whether the Plan could be confirmed because the Debtor had made no monthly interest payments to USC. Id. at *16.

The Bankruptcy Court Denies Confirmation and Terminates the Stay

Feasibility was one of the central issues at confirmation. USC objected because the Debtor did not have approved construction financing or a refinancing commitment. The Debtor argued that, based on its conversations with regional banks and the property’s prime location, it would easily obtain post‑confirmation financing. To satisfy the feasibility requirements of section 1129(a)(11), the Debtor had to show that the Plan rested on objective facts rather than its principal’s confidence. As the bankruptcy court explained, “[s]incerity, honesty, and willingness are not sufficient to make the plan feasible, and neither are any visionary promises.” Id. at *13 (quoting In re Cheatham, 78 B.R. 104, 109 (Bankr. E.D.N.C. 1987)).

The bankruptcy court held that the Plan was not feasible because the only evidence of the refinancing was the testimony of the Debtor’s principal. Despite accepting that the Debtor could finish the construction project and lease the finished project if the DIP Financing were approved, the bankruptcy court explained that “completion of construction and leasing the property is not the ‘exit plan’ for this case; refinancing the debt and paying all creditors in full is.” Nova, 2026 WL 3126624, at *14.

The principal “only testified about his efforts to receive prepetition and DIP financing, not exit financing.” The bankruptcy court found that the principal was “short on concrete commitments, instead giving off a sense of ‘just trust me, if I have the funds to complete the project it will all work out.’” As the court noted, “‘[p]otential’ exits do not demonstrate feasibility.” The bankruptcy court concluded that, because the Debtor “failed to establish any concrete plan to refinance the debt and pay creditors as proposed, instead providing vague assurances that numerous (unspecified) banks would be willing to provide mini‑perm financing upon completion of construction,” the Plan was not feasible. Id. at *14‑15.

The refinancing also depended on construction financing the bankruptcy court had not approved, because no certificate of occupancy would issue until all three buildings were complete. The Plan also proposed to pay the DIP Lender when the DIP Financing matured in February 2027, with no source identified other than the same promised refinancing. It proposed to pay approximately $1.4 million of general unsecured claims in full on the effective date, before the Lenders received anything, with no evidence of how those claims would be paid. Moreover, the bankruptcy court found that the stabilized value of the property did not appear sufficient to pay the Lenders in full in July 2027 once interest was added. Id. at *14 n.5, *15.

Because the Plan could not be confirmed and the Debtor had made no monthly interest payments, the bankruptcy court held that section 362(d)(3) required termination of the automatic stay rather than an opportunity for the Debtor to propose an amended plan. The bankruptcy court also denied the request for a second advance of DIP Financing. Importantly, the bankruptcy court acknowledged that “it is not apparent to the court that this is the equitable outcome in this case,” but concluded that it did not have the authority to reach a different result. Id. at *15, *18‑20.

Lessons for Developers Considering Chapter 11

The following lessons apply to real estate developers considering chapter 11 and the lawyers who represent them:

• Provide written evidence of the proposed exit at the confirmation hearing. A commitment letter or term sheet is the strongest evidence. As a general practice, however, written letters of interest that state the conditions to closing, together with testimony from a prospective lender rather than the principal alone, may strengthen the debtor’s showing.
• Fund the work the refinancing depends on before confirmation. Because the request for a second advance of DIP Financing was heard together with confirmation, the bankruptcy court observed that hearing every matter at once “tied the court’s hands on matters over which it might have had more discretion earlier in the case.” at *18 n.8. A debtor whose exit requires a finished project should seek approval of the financing needed to finish it early in the case.
• Ensure that the plan has proper remedies if contingencies are not met. The bankruptcy court noted that the Plan “does not provide for liquidation if [the Debtor] is unable to refinance after the completion of construction” and that the Debtor’s other potential exits were not included in the Plan “for scrutiny by the court.” at *14‑15. Section 1129(a)(11) accommodates a liquidation that is “proposed in the plan.” A plan that depends on a refinancing may set a deadline for the refinancing to close and provide specific remedies if it does not, such as a sale of the property on a set timeline or stay relief for the secured lenders. This may also open a dialogue with the lenders to move toward a consensual plan.
• Make monthly interest payments to the secured lenders, instead of relying on the plan. Section 362(d)(3) allows a single asset real estate debtor to avoid mandatory stay relief by making monthly payments to each real estate lender equal to interest at the nondefault contract rate on the value of the lender’s interest in the property. The opinion does not say why the Debtor did not make those payments, presumably because the stalled project was not producing rental income. Monthly interest payments remain a viable option for a developer that can fund them. The payments do not cure a hope plan, but they remove the mandatory stay relief of section 362(d)(3), which occurred in this case, and may give the debtor time to finish construction and build the record for its exit.

If you are a developer considering chapter 11 to finish a stalled project, FactorLaw can help evaluate whether the plan’s exit financing will satisfy a bankruptcy court and whether interest payments pursuant to section 362(d)(3) should be part of the strategy.