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A Crash Course in Chapter 12 Bankruptcy

Chapter 12 is designed for "family farmers" or "family fishermen" with "regular annual income." It 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." But 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. There are specific rules in the Bankruptcy Code which place limits on who can file for a Chapter 12 reorganization.

Step 1

When you are ready, you will meet with an attorney to find out if Bankruptcy is right for you. At your first meeting, the attorney will tell you about your Bankruptcy options (including Chapter 12, if applicable) and assist you in understanding the process. A skilled Bankruptcy attorney will answer all of your questions in an understandable way and provide you with a Bankruptcy Questionnaire. Don’t be afraid to ask questions, it is important that you be fully informed before you file your case.

Step 2

If you decide to file for Bankruptcy protection you will schedule a follow-up appointment to bring in your information. At this appointment, your will be asked to return the Bankruptcy Questionnaire you received at your first meeting which provides the attorney with information regarding your property, debts, income and expenses. You will also be required to produce certain documents such as paystubs, bank statements and tax returns. Again, ask questions!

Step 3

At your final appointment, the attorney will ask you to review and sign your (1) schedules of assets and liabilities, (2) a schedule of current income and expenditures, (3) a schedule of executory contracts and unexpired leases, and (4) a statement of financial affairs. It is important that you read these documents carefully to make sure they are correct. Your Bankruptcy process will go much smoother if you provide detailed, accurate information.

Step 4

Shortly after filing your Chapter 12 case, a Trustee will be appointed to administer the case. The Trustee both evaluates the case and serves as a disbursing agent, collecting your payments and making distributions to creditors. From time to time, you and your attorney may receive correspondence from the Chapter 12 Trustee. This correspondence may include requests for specific information or be general information to help you make your Chapter 12 a success.

Meeting with the US Trustee

A few weeks after the case is filed you will be required to attend a “Section 341 Meeting of Creditors.” Your attorney will attend this meeting with you. At the meeting you will meet with the Chapter 12 Trustee. The Trustee will interview you and ask you a series of questions about your case. The questions are straightforward and not meant to trick you. You are there to testify as to the truthfulness of the information contained in your Bankruptcy papers. Although the meeting is designed to give creditors an opportunity to appear and ask you questions, they rarely attend. While the meeting is a very important part of the Bankruptcy process and you must be absolutely truthful in answering the questions, the atmosphere is informal and not meant to be intimidating or harassing. If you get stumped, your attorney will be there to assist you. At the meeting the Trustee will review the case with you and your attorney.

What Happens Next?

Unless the court grants an extension, the debtor must file a plan of repayment with the petition or within 90 days after filing the petition. The Plan, which must be submitted to the court for approval, provides for payments of fixed amounts to the trustee on a regular basis. 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 Your attorney will work to resolve any concerns the Trustee or Creditors may have with your Plan. Once all issues have been resolved and all concerned parties are in agreement, the Plan will be confirmed by the Bankruptcy Judge.

Your Discharge

At the end of your Chapter 12 Bankruptcy, if you qualify, you will receive a discharge of all or most of your unsecured debt not paid in your Chapter 12 Plan. You will receive a discharge after completing all payments under the chapter 12 plan as long as you certify (if applicable) that all domestic support obligations that came due before making such certification have been paid. The discharge has the effect of releasing your from all debts provided for by the plan with limited exceptions. 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 you to collect the discharged obligations.