LAWDOG BANKRUPTCY: CHAPTER 12

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Chapter 12 of the United States Bankruptcy Code provides protection for "family farmers with regular annual income". Chapter 12 offers a reorganization plan for qualifying "family farmers" which is similar to a Chapter 13, but with higher debt limitations. Only a "family farmer" with regular annual income may be a debtor under Chapter 12 of this title. See Section 109 (f) reproduced here for illustration purposes only.

Under Section 101 (19), ''family farmer with regular annual income'' means a family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan under Chapter 12 of this title. The definition of "family farmer" permits a debtor to be a corporation, partnership, individual, or individual and spouse, provided that the other requirements, including debt limitations are also met. See Section 101 (18) reproduced here for illustration purposes only.

An "automatic stay" is a statutory "order", effective upon the filing of a bankruptcy, which protects the debtor and prohibits actions by creditors. It applies to all entities. Generally, all acts against the debtor or property MUST CEASE upon the filing of a bankruptcy. The filing of a petition under Chapter 12 automatically stays most collection actions against the debtor or debtor's property. If the debt is a "consumer debt, a creditor may NOT pursue against a co-debtor or a personal guarantor not in bankruptcy. See "Automatic Stay" and "Co-Debtor Stay" from the previous menu.

In a Chapter 12 Bankruptcy, the debtor is required to file a plan not later than 90 days after the order of relief, which is generally the filing date of the petition. The court may extend this time under very limited circumstances. Only the debtor may file a Chapter 12 plan.

The Chapter 12 plan may not provide for payments over a period that is longer than three years unless the court for cause approves a longer period not exceeding five years. However, certain long-term debts are exempted. See "Chapter 12 Plan" from the previous menu.

After approval, the provisions of a confirmed plan bind the debtor, each creditor, each equity security holder, and each general partner in the debtor, whether or not their claim is provided for by the plan, and whether or not such creditor, such equity security holder, or such general partner in the debtor has objected to, has accepted, or has rejected the plan. See "Confirmation of Plan" from the previous menu.

Section 1228(a) provides for a discharge when the Chapter 12 debtor has fully performed under a plan. A Chapter 12 discharge relieves the debtor of all obligations provided for in the plan except for certain long-term debts, or debts found by the Court to be nondischargeable under Section 523(a). A hardship discharge may be permitted under certain circumstances. See Section 1228(a) reproduced here for illustration purposes only. Also see Conversion, Discharge, and Dismissal from the previous menu.

Section 523(a) "nondischargeable" debts may include certain taxes, money or property or services which were procured through fraud, spousal or child support, fines and penalties imposed by a governmental agency, certain student loans, willful and malicious injury, and others. Some claims under Section 523 are discharged unless the creditor takes timely action to object within very strict time deadlines. See Objections To Discharge from the previous menu.

SUNSET PROVISION TO CHAPTER 12 BANKRUPTCY

Pub. L. 99-554, Title III, s302(f), October 27, 1986 provided that, effective October 1, 1998, Chapter 12 of the Bankruptcy Code is repealed, but all cases commenced or pending at that time would continue to be governed by the chapter as if it has not been repealed.

On July 16, 1997, a Senate Bill (s. 1024), entitled the "Family Farmer Protection Act Of 1997" was introduced in the 1st Session of the 105th Congress making Chapter 12 of Title 11 of the United States Code permanent.

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