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How Chapter 12 Works

A Chapter 12 bankruptcy case begins by filing a petition with the bankruptcy court having jurisdiction over the area where the individual lives or where the corporation or partnership debtor has its principal place of business or principal assets. Unless the court has ordered otherwise, the debtor also should file with the court, schedules of assets and liabilities, current income and expenditures, executory contracts and unexpired leases, and a statement of financial affairs along with the petition.

A husband and wife may file a joint petition or individual petitions. The courts charge case filing fee and miscellaneous administrative fee. Normally the fees should be paid to the clerk of the court upon filing. However, they may be paid in installments also with the court’s permission. The number of such installments is limited to four and the debtor must make the final installment no later than 120 days after filing the petition. The court may extend the time of any installment for cause shown but it should not be later than 180 days after the filing of the petition. Only one filing fee and one administrative fee are charged when a joint petition is filed. The failure to pay these fees might result in dismissal of the case.

The debtor should have the compilation of all information relating to all creditors and the amounts and nature of their claims; the source, amount, and frequency of the debtor’s income; a list of all of the debtor’s property; and the debtor’s monthly farming and living expenses in order to complete the Official Bankruptcy Forms which include the petition, statement of financial affairs, and various schedules. Married individuals must collect this information for each spouse regardless of whether they are filing a joint petition, separate individual petitions, or even if only one spouse is filing. The income and expenses of the non-filing spouse are required so that the court, the trustee, and the creditors can assess their financial position.

On filing of a Chapter 12 petition, an impartial trustee is appointed to administer the case. In some districts, the U.S. trustee appoints a standing trustee to serve in all Chapter 12 cases. The trustee both evaluates the case and serves as a disbursing agent, collecting payments from the debtor and making distributions to creditors. Filing a Chapter 12 petition automatically stays most collection actions against the debtor or the debtor’s property. Creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments as long as the stay is in effect. The bankruptcy clerk gives notice of the case to all creditors whose names and addresses are provided by the debtor. Chapter 12 also contains a special automatic stay provision that protects co-debtors. However, filing the petition does not stay certain types of actions listed under the code.

Chapter 12 trustee will hold a “meeting of creditors” between 21 to 35 days after filing the petition. If the U.S. trustee or bankruptcy administrator schedules the meeting at a place that does not have regular U.S. trustee or bankruptcy administrator staffing, the meeting may be held no more than 60 days after the debtor files. The trustee puts the debtor under oath and both the trustee and creditors may ask questions during the meeting. The debtor must attend the meeting and answer questions regarding the debtor’s financial affairs and the proposed terms of the debtor’s repayment plan. In case of a joint petition, both the husband and wife must attend the creditors’ meeting. However, bankruptcy judges are prohibited from attending the meeting in order to preserve their independent judgment.

Unsecured creditors in a Chapter 12 case must file their claims with the court within 90 days after the first date set for the meeting of creditors in order to participate in distributions from the bankruptcy estate. However, a governmental unit has 180 days from the date the case is filed to file a proof of claim.

The parties usually resolve problems with the plan either during or shortly after the creditors’ meeting. Generally, the debtor can avoid problems by making sure that the petition and plan are complete and accurate, and by consulting with the trustee prior to the meeting. After the meeting of creditors, the debtor, the chapter 12 trustee, and interested creditors will attend a hearing on confirmation of the debtor’s repayment plan.

Inside How Chapter 12 Works