What is Chapter 12
A chapter 12 debtor is primarily a family farmer or family fishermen. The Bankruptcy Code provides that only a family farmer or fisherman with regular annual income may file a petition under chapter 12. The purpose of this requirement is to ensure that the debtor’s annual income is stable and regular to permit the debtor to make payments under a chapter 12 plan. However, allowance is made for situations in which family farmers or fishermen have income that is seasonal in nature. Family farmers and family fishermen fall into two categories: (1) an individual or individual and spouse and (2) a corporation or partnership.
To meet the economic realities of family farming and the family fisherman, chapter 12 eliminates many barriers the debtor might face if filing under chapters 11 or 13. Chapter 12 is more streamlined, less complicated and less expensive than chapter 11. Few family farmers or fishermen find chapter 13 to be advantageous because it is designed for wage earners who have smaller debts.
Upon the filing of a chapter 12 petition, a trustee is appointed to administer the case, evaluating the case and making distributions to creditors. The debtor proposes a repayment plan to creditors over three to five years. The plan, which must be approved by the court, provides for payments of fixed amounts to the trustee. The trustee then distributes the funds to creditors according to the terms of the plan, which typically offers creditors less than full payment on their claims. One of the features of chapter 12 is that payments to secured creditors can sometimes continue longer than the three-to-five year period of the plan.
The bankruptcy law concerning a chapter 12 discharge is complex and the debtor should consult competent legal counsel in this regard prior to filing. Those debts which will not be discharged should be paid in full under a plan. Secured debts may be paid beyond the end of the plan payment period and are not discharged. 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 who fails to complete plan payments due to circumstances beyond the debtor’s control and through no fault of the debtor. Creditors must have received at least as much as they would have received in a chapter 7 liquidation case, and the debtor must be unable to modify the plan.