Chapter 12 Bankruptcy

Chapter 12 bankruptcy was added to the Bankruptcy Code in 1986 by the Family Farmer Bankruptcy Act of 1986. Chapter 12 bankruptcy is applicable only to family farmers and family fishermen with regular annual income. Chapter 12 bankruptcy offers additional benefits to farmers and fishermen in certain circumstances, beyond those available to ordinary wage earners.

Chapter 12 bankruptcy enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under Chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period for cause. However, unless the plan proposes to pay 100% of domestic support claims (i.e., child support and alimony) if any exist, it must be for five years and must include all of the debtor’s disposable income. In no case may a plan provide for payments over a period longer than five years.

Chapter 12 removes many of the barriers such debtors would face if seeking to restructure under either Chapter 11 or 13 of the Bankruptcy Code. Chapter 12 is more streamlined, less complicated, and less expensive than Chapter 11, which is better suited to large corporate reorganizations. Likewise, Chapter 13 seems to be advantageous for wage earners who have smaller debts than those facing family farmers. Chapter 12 is designed combining the features of the Bankruptcy Code which can provide a framework for successful reorganization of family farmer and fisherman.

“Family farmers” and “family fishermen” fall into two categories under the Bankruptcy Code. They are;(1) an individual or individual and spouse and (2) a corporation or partnership. In order to qualify for relief under Chapter 12, farmers or fishermen falling into both categories must meet certain criteria provided in the Code as of the date the petition is filed.

A debtor cannot file under Chapter 12 if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor’s willful failure to appear before the court or comply with orders of the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. An individual cannot file as a debtor under chapter 12 unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in an individual or group briefing.

A Chapter 12 case begins by filing a petition with the bankruptcy court serving the area where the individual lives or where the corporation or partnership debtor has its principal place of business or principal assets. Generally, the debtor must file a plan of repayment with the petition or within 90 days after filing the petition. The provisions of a confirmed plan bind the debtor and each creditor. On confirmation of the plan by the court, the debtor must make regular payments to the trustee.

The debtor will receive a discharge after completing all payments under the Chapter 12 plan as long as the debtor certifies (if applicable) that all domestic support obligations that came due before making such certification have been paid. Those creditors who were provided for in full or in part under the plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations. Those categories of debts that are not discharged in chapter 12 proceedings are listed in the Code. The court may grant a “hardship discharge” to a chapter 12 debtor even though the debtor has failed to complete plan payments. Generally, a hardship discharge is available only to a debtor whose failure to complete plan payments is due to circumstances beyond the debtor’s control and through no fault of the debtor.


Inside Chapter 12 Bankruptcy