Millions of dollars worth of property around Smith Mountain Lake could be headed to a new owner after a federal judge ended LakeWatch LLC's attempt to reorganize under Chapter 11 bankruptcy.

An order filed Tuesday in U.S. Bankruptcy Court in Roanoke clears the way for possible repossession of the undeveloped sections of the LakeWatch Plantation development, Roanoke attorney Andrew Goldstein said Wednesday. Also affected are open lots at the Waterside development, according to court filings.

LakeWatch LLC had been operating under a court-approved plan to pay its creditors through sales of its properties, but in the crippled real estate market could not keep up with expenses.

"The whole process depended on values coming back more quickly than they have in the lake area ... There's just so much inventory out there right now, it makes it hard to deal in the short term," Goldstein said.

LakeWatch Plantation is on Virginia 122 in Franklin County. Waterside is in Bedford County.

Other developments connected to LakeWatch LLC principal Edward "Trey" Park, including LakeWatch Spa and Resort, are not affected directly by U.S. Bankruptcy Judge Ross Krumm's order, Goldstein said.

Goldstein worked with LakeWatch LLC and also represents Park in his ongoing personal bankruptcy case.

LakeWatch sought Chapter 11 protection in August 2009 and agreed in March to make monthly payments of $25,000 to StellarOne Bank, which had loaned LakeWatch millions of dollars. The company also agreed to sell $1.5 million of its property by the end of July.

The company achieved these goals, but Krumm's order said the equity in the remaining properties dropped by $426,415 between March and August and showed a "substantial and continuing loss to the creditors and diminution of the estate."

March was the only month this year that LakeWatch covered its operating expenses, the judge said financial reports showed.

In July, the bank asked the court to dismiss LakeWatch's bankruptcy case, saying that while commercial lots had sold, only one residential lot in Waterside and none in LakeWatch Plantation had found buyers during the summer selling season. Unpaid real estate taxes on LakeWatch LLC's properties had mounted to $361,909 by the end of July, the bank said.

"StellarOne's collateral position is getting worse -- not better -- each day," the bank's July motion said.

As of Aug 10, LakeWatch owed StellarOne about $13.5 million, a figure that did not include interest, late fees or attorneys fees, Krumm's order said.

The bank's next step was unclear Wednesday. Roanoke attorney Paul Black, who represented StellarOne in the LakeWatch LLC case, said he had not been cleared by his client to comment.