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Consumer Bankruptcy Law and Practice: 17.2.2.5 Joint Chapter 12 Filings

Joint filings under chapter 12 by both spouses are permitted.186 A debtor may also file an individual case without including a spouse; or spouses may file individual cases and move for joint administration of the cases, provided each individually meets the eligibility requirements.187 Many farm loans will have both spouses as signatories, making a joint filing desirable.188

Consumer Bankruptcy Law and Practice: 17.2.3.2 Appointment of Counsel

Because the debtor in chapter 12 operates as a debtor-in-possession and because of the amount of the fees that may be involved, the Code requires the same application process for chapter 12 cases as for chapter 11, with application for appointment of counsel and an order approving the application.195 Such appointment should be routinely granted unless some conflict of interest or perceived inability competently to represent a debtor due to time constraints or past unacceptable performances is apparent.196

Consumer Bankruptcy Law and Practice: 17.2.3.3 Costs and Attorney Fees

The non-waivable filing fee for a chapter 12 case, whether individual, joint, corporate, or partnership, is $200.199 There is also a $78 administrative fee due in every case. Counsel for the chapter 12 debtor should check the local rules and orders of the applicable court for imposition of other charges attendant to a chapter 12 filing.

Consumer Bankruptcy Law and Practice: 17.2.4 Voluntary Conversion from Other Chapters to Chapter 12

Chapter 7: Section 706(a) provides an absolute right to convert from a chapter 7 bankruptcy to one under chapter 12, provided there has been no previous conversion.

Chapter 11: Section 1112(d) allows conversion from a chapter 11 case to one under chapter 12 at the request of the debtor if the debtor has not received a discharge under section 1141(d) and the conversion is found to be “equitable.”

Consumer Bankruptcy Law and Practice: 17.4.1.1 Role and Standing of the Trustee

The chapter 12 trustee is an administrative officer with duties similar to those of chapter 13 trustees. The chapter 12 trustee may be the United States trustee, a standing chapter 12 trustee appointed by the United States trustee who serves in all chapter 12 cases, or a disinterested person appointed by the United States trustee.229 Most districts have appointed a special standing chapter 12 trustee for administration of family farmer cases.

Consumer Bankruptcy Law and Practice: 17.4.1.2.1 Introduction

The compensation of chapter 12 trustees and their offices, like those administering chapter 13 cases, is derived from payments made through the chapter 12 plan.242 A percentage fee is charged against “all payments received by such individual” under the chapter 12 plan.

Consumer Bankruptcy Law and Practice: 17.4.1.2.4 Does the trustee receive a fee on its fee?

Another trustee compensation issue producing significant litigation and causing a split in authority is whether the chapter 12 trustee should receive their ten percent commission only on payments made by the debtors to their creditors, or whether the ten percent fee also should be computed on the money paid to the trustee herself. It again turns on an interpretation of section 586(e), which provides that the trustee shall collect “such percentage fee from all payments received.”264

Consumer Bankruptcy Law and Practice: 17.5.5.4 Treatment of Priority Unsecured Creditors

Section 507 sets forth several categories of unsecured indebtedness that are accorded priority treatment. Attorneys should always review this section for applicability to their client’s individual situation. Section 1222 sets forth the appropriate treatment of these claims in a chapter 12 bankruptcy, with the general rule being that such claims are entitled to full payment.585

Consumer Bankruptcy Law and Practice: 17.5.6.1 Generally

Generally claims of equal rank concerning the same property (whether as collateral or as distribution upon or in lieu of liquidation from general assets) should be included in the same class. Claims of different rank or of the same rank concerning different property should be separately classified. Classification of claims should not be arbitrary, should not do substantial violence to the nature and rights inherent in the claims, and should not uselessly increase the number of classes of creditors.600

Consumer Bankruptcy Law and Practice: 17.5.7.1 Good Faith Test

Section 1225 also includes a “good faith” test for plan confirmation. The plan must have been proposed in good faith, that is, the debtor must have a sincere intention to reorganize the farming operation according to the plan. Chapter 12 is not to be used solely to delay creditors from enforcing their legal rights.628

Consumer Bankruptcy Law and Practice: 17.5.7.2.1 General observations

Section 1225 also contains a feasibility requirement.641 The debtor must be able to show the court that the plan is feasible, that is, that they can afford to make all of the payments that are required under the plan. This requirement is independent of the requirements for secured and unsecured claims, implying that courts can make an independent inquiry even if creditors do not raise an objection.

Consumer Bankruptcy Law and Practice: 17.5.7.2.2 Determination of feasibility

The determination of feasibility for a chapter 12 plan requires an evaluation of the best indicia of plan success—or failure—available to the decision-maker at the time plan confirmation is sought. It is an issue for consideration at confirmation; consideration prior to confirmation would be premature even though a plan’s lack of feasibility may be grounds for a chapter 12 case’s dismissal.650