How Chapter 12 Bankruptcy Works

In coastal states like North Carolina, a large number of people make their living from farming and fishing. For working families who are facing financial struggles, Chapter 12 bankruptcy can be extremely helpful as it may offer them a way out of debt through a repayment plan similar to that offered under Chapter 13 bankruptcy. Chapter 12 of the Bankruptcy Code provides special provisions to family farmers and fishermen to assist them in times of need.

At Bradford Law Offices, PLLC, we are committed to helping small farms and fishing operations to weather any period of financial difficulty. These businesses are important for the community, and as the owner of such an enterprise, you should ensure that you fully understand your options. Contact our Raleigh Chapter 12 bankruptcy lawyers at (919) 758-8879.

The Chapter 12 Bankruptcy Process

Because Chapter 12 bankruptcy is intended to help a specific group, there are various unique qualifying requirements that will bear upon a case. As you consider a case, you should be aware that the following must be submitted and will be evaluated to determine whether you will be granted bankruptcy protection:

  • List of all assets and liabilities
  • Current income and monthly expenses (includes farming/fishing expenses as well as living expenses like food, shelter, etc.)
  • Any business contracts
  • List of creditors and amounts owed to each
  • List of property you own
  • Filing and administrative fee

After a filing, a trustee will be appointed to the case and subsequently be responsible for managing the collection and distribution of payments to your creditors. The final step before your case can be approved is a meeting of creditors in which you will present a proposed repayment plan to creditors who have the authority to accept or reject the terms.

The Chapter 12 Repayment Plan

Within 90 days from the date of filing bankruptcy, the debtor must propose a repayment plan. However, the deadline can be extended under certain circumstances. Under Chapter 12, the debtor has up to five years to pay off the creditors. The minimum plan period is three years unless the debtor can pay the debt off sooner. The plan period can be extended to up to five years if approved by the court.  If the debtor owes child support or alimony, then the plan period must be five years unless it is paid faster.

The payment plan takes into account three types of claims: priority, secured, and unsecured:

Priority claims – These are claims that are granted special status by bankruptcy law. These include most taxes and the cost of the bankruptcy proceeding. Priority claims must be fully paid within the proposed payment plan period unless the priority creditor agrees otherwise.

Secured claims – Secured claims are attached to certain specific properties, also known as “collateral.” If the claim is not paid, the creditor will have the right to liquidate the collateral. Secured claims must be paid up to the value of the pledged collateral. The payment plan may be allowed to surpass the plan period in certain cases.

Unsecured claims – The claim is not attached to any specific property. As a result, the creditor does not have any special rights to collect against any property. Unsecured claims don’t have to be paid in full. Even so, the debtor must commit all of the projected “disposable” income to plan payments during the three to five-year period. The unsecured creditors must also receive the equivalent of the non-exempt assets’ liquidated value. Non-exempt assets are things like a newer model car, an expensive musical instrument not needed for work, valuable art, jewelry, or stamp collections.

Within 45 days of filing the Chapter 12 payment plan, the judge will decide whether the plan is feasible. This decision will rely heavily on the court-appointed trustee’s recommendations. It must also meet Bankruptcy Code standards.

If it meets all the requirements, the plan will be confirmed. If not, then the debtor must file a modified plan. The debtor can also liquidate under Chapter 7. If the debtor is unable to file an acceptable plan, the court may dismiss the case and return all funds less the court costs.

Upon confirmation of the plan, the debts will then be restructured accordingly. The payment plan will then be put into effect. This will be binding on all the creditors, as well as the debtor.

The Chapter 12 Discharge

After completing all the payments under the Chapter 12 payment plan, the debtor will receive a discharge. On the other hand, the bankruptcy may also be discharged if the debtor is unable to make the payments. This is only possible if the circumstances of the debtor’s failure to continue payments is beyond their control and isn’t their fault. This “hardship discharge” may be granted even if the plan payments were not completed.

Once discharged, the debtor is released from debt according to the plan. Thus, the creditors who were paid under the plan can never collect on the discharged debt obligations.

Contact Us

For assistance with any aspect of a Chapter 12 bankruptcy case, or to learn more about how Chapter 12 bankruptcy works, contact the Raleigh Chapter 12 bankruptcy attorneys of the Bradford Law Offices, PLLC by calling (919) 758-8879 today.