For related pages, see: Bankruptcy Overview.
A Chapter 12 Bankruptcy is in many ways similar to a Chapter 13 Bankruptcy, though it is only available to family farmers or family fisherman. Unlike a Chapter 13 Bankruptcy, these terms are defined to include not only individuals but also corporations engaged in the family farm or fishing operations.
One principal difference between a Chapter 12 Bankruptcy and a Chapter 13 Bankruptcy is the debt limit. For Chapter 12, the debt limit is $10,000,000. By contrast, an individual may file a Chapter 13 case only if unsecured debt is is less than $419,275 and secured debt is less than $1,257,850 (figures as of April 1, 2019).
Another difference is that the debtor in a Chapter 12 Bankruptcy case may modify mortgages and liens against the debtor’s primary residence.
Estate, Trustee and Creditors
In a Chapter 12Bankruptcy case, the “estate” includes post-petition income and property in addition to what the debtor owned at filing.
A Chapter 12 trustee does not sell non-exempt assets. Instead, the trustee collects monthly payments from the debtor and makes payments to creditors.
As in other cases, a creditor is required to file a proof of claim to receive their portion of plan payments, and an objection may be filed to improper claims.
The Stay and Exemptions
When a case is filed, an “automatic stay” is triggered. A stay is an injunction preventing creditors from collecting from the debtor or from the estate and, as the name implies, is automatic (no separate court order is required). In a Chapter 13 Bankruptcy case, the stay protects the debtor’s assets from seizure, unless the Bankruptcy Court orders otherwise.
A creditor who wishes to collect, or to foreclose on property of the estate may do so only with the approval of the bankruptcy court. The process is initiated by filing a motion requesting “relief” from the automatic stay. A motion may be granted if, for example, collateral is not necessary to the debtor’s successful reorganization.
Even though the trustee does not liquidate assets in a Chapter 12 Bankruptcy case, an individual debtor still claims eligible property as “exempt.” The value of the non-exempt assets affects the amount the debtor must pay through the plan.
In a Chapter 12 Bankruptcy case, a debtor will receive a discharge after complying with all requirements of the Bankruptcy Code, including making the required payments over the three to five year life of the plan. As in other cases, misconduct during the case, or in some cases before the case was filed, will prevent a discharge of some or all debts.
Even for debtors who play by the bankruptcy rules, certain debts are “excepted” from discharge. Debts excepted from discharge include child support, certain taxes, and debts incurred by fraud.