Skip to main content

Search

Consumer Bankruptcy Law and Practice: 17.8.2 Postconfirmation Indebtedness

Indebtedness incurred by the debtor after confirmation of a chapter 12 plan must be paid by the debtor separate and apart from the plan and not as a part of the chapter 12 proceeding.774 Unlike chapter 13, chapter 12 does not have a provision to allow postpetition indebtedness accrued for taxes, approved by the trustee, or incurred upon an emergency basis to be folded back into the plan.775

Consumer Bankruptcy Law and Practice: 17.8.3 Revocation of Confirmation

The confirmation of a chapter 12 plan may be revoked if the order of confirmation was procured by fraud.780 Revocation must be requested by a party in interest within one-hundred-eighty days of the entry of the order confirming the plan.781 Notice and a hearing are required prior to revocation.782 If confirmation is revoked, then the court will dispose of the chapter 12 case by dismissal, or, if appropriate, by conversion to chapter 7, unless the c

Consumer Bankruptcy Law and Practice: 17.4.4.4 Stay Limitations for Repeat Filings

The 2005 amendments added a provision to section 362 that authorizes the lifting of the automatic stay thirty days after the petition is filed if an individual debtor has filed a bankruptcy that is dismissed and then refiles under chapter 7, 11, or 13 within one year of the dismissal.360 Chapter 12 is notably absent from the list of included chapters, so a debtor may be able to refile under chapter 12 without concern for this provision.

Consumer Bankruptcy Law and Practice: 17.4.5 Objections to Discharge

As in chapter 13, the chapter 12 debtor is granted a discharge at such time as the debtor has completed making all of the payments called for by the plan, other than payments made extending beyond the plan period.364 The scope of the chapter 12 discharge, however, is similar to that available in chapter 11.365 Unlike the broader chapter 13 discharge,366 the confirmation and consummation of a chapter 12 plan will not discharge debts that would be no

Consumer Bankruptcy Law and Practice: 17.4.6.1 Voluntary Dismissal

As under section 1307(a) for chapter 13 debtors, section 1208(b) allows the family farmer debtor, upon their own request, to dismiss a chapter 12 proceeding at any time without permission of the court, unless the case is in chapter 12 as a result of a conversion from either chapter 7 or 11.370 Any waiver of that right of conversion is unenforceable.371 If the case is a conversion to chapter 12 from either chapter 7 or chapter 11, then court approval upon notice and hearing is required prior to d

Consumer Bankruptcy Law and Practice: 17.4.7.1 Generally

The chapter 12 debtor-in-possession has the power to assume or reject executory contracts and unexpired leases under section 365 of the Code. Refer to the discussion of this topic in the context of chapter 13 in § 12.9, supra, for a general understanding of section 365.414

Consumer Bankruptcy Law and Practice: 17.4.7.2 Federal Farm Program Contracts As Executory Contracts

Farmers will frequently participate in one or more federal farm programs. As these contracts, in particular those that extend beyond one year, have been held to be executory contracts, it may be necessary for the farmer to reaffirm the program contract in order to continue participation in the program. On the other hand, if the farmer has defaulted on the obligation under the program and risks penalties, rejection of the contract may be in order.

Consumer Bankruptcy Law and Practice: 17.4.8 Use of Cash Collateral

The typical consumer debtor is not concerned with the use of cash collateral except for the consumer’s use of checking or savings accounts at creditor institutions.425 However, the source of a farmer’s income for living and operating expenses is often derived directly from sources in which secured creditors have a continuing, postpetition security interest. Moreover, in chapter 12 an ongoing business is at issue, and this business is likely to need funds for its continuation, which may involve the use of “cash collateral.”

Consumer Bankruptcy Law and Practice: 17.4.10 Sale of Property Free and Clear of Liens

Chapter 12 includes a provision444 allowing the chapter 12 trustee and the debtor-in-possession445 to sell farmland or farm equipment free and clear of liens regardless of creditor consent.446 Any lien affected by the sale attaches to the proceeds.447 As with all sales of secure property under section 363, the trustee or debtor-in-possession must make application for sale free and clear of liens, and

Consumer Bankruptcy Law and Practice: 17.4.11 Adequate Protection Under Chapter 12

Instead of utilizing the adequate protection definition applicable to other bankruptcy chapters,449 section 1205 creates a special chapter 12 definition of adequate protection for secured creditors.450 Section 1205 applies to chapter 12 cases whenever reference is made to adequate protection under sections 362 (automatic stay and relief therefrom), 363 (sale, use and lease of property and use of cash collateral), and 364 (obtaining credit).

Consumer Bankruptcy Law and Practice: 17.4.12 Creditors’ Right to Set Off

Under section 553, a creditor may claim or set off against its indebtedness any benefits or property in the creditor’s possession or control if: (1) the debt owed to the creditor by the debtor arose before commencement of the bankruptcy case; (2) the claim of the creditor against the debtor also arose before commencement of the bankruptcy case; and (3) the debt and claim are mutual obligations.460 The provisions of section 553 do not expand the rights of creditors; the creditor claiming a right to set off must be entitled so to do under exist

Consumer Bankruptcy Law and Practice: 17.5.1 Overview

Sections 1222 and 1225 provide the requirements for the chapter 12 debtor’s reorganization plan. If the debtor can convince the court that the proposed plan meets these requirements, the court “shall” confirm the plan, even in the face of creditor objection.

Consumer Bankruptcy Law and Practice: 17.5.3 Determining the Value of the Creditor’s Claims: The Allowed Secured Claim

Section 1225 contains specific and distinct requirements for the treatment of secured claims and unsecured claims under the debtor’s plan. In most chapter 12 cases the debtor will have at least one major secured creditor that is undersecured, that is, the debt to that creditor is more than the amount of valid security. In this situation, chapter 12 provides for the bifurcation of the debt to the creditor into the allowed secured claim (generally equal to the value of the security) and an unsecured claim equal to the remaining obligation.

Consumer Bankruptcy Law and Practice: 17.5.4.1 Generally

Section 1225(a)(5) sets out three alternatives for the treatment of secured claims under chapter 12. First, the secured creditor can agree to its treatment under the plan. Second, the plan can provide that the secured creditor receive the “present value” of its secured claim and keep its lien on its collateral. This second alternative is the one that is used most often by chapter 12 debtors. In general terms, it means that the creditor will be paid an amount equal to the fair market value of the collateral.

Consumer Bankruptcy Law and Practice: 17.5.4.3 Interest Rates for Secured Creditors

Secured creditors in chapter 12 cases are entitled to an interest or discount rate to assure them the present value of their claim when it is paid over time.525 In the past, although courts have agreed that a “market rate” was generally appropriate, different courts have taken diverse approaches to determining what the market rate might be.

Consumer Bankruptcy Law and Practice: 17.5.4.4 Return or Surrender of Property to Secured Creditors

One of the most effective tools of reorganization is the paring down of the farm operation by reduction of collateral and its accompanying debt service. One of the primary methods of accomplishing this is return, relinquishment or abandonment to the secured creditor of all or a portion of the creditor’s collateral. Such a return or relinquishment operates to reduce the allowed secured claim by the value of the collateral.