Bankruptcy Guide Chapter 12

Chapter 12 Bankruptcy

Farmers’ Reorganization

What is it?

Chapter 12 is designed to provide “family farmers” who want to continue in the farming business with a means for financially restructuring their debts without selling their farm. A trustee is appointed in a Chapter 12 case, but her role is generally limited to the oversight of payments under the Debtor’s plan of reorganization. Absent extension, a Chapter 12 Debtor is required to file a plan of reorganization within 90 days of the filing of the bankruptcy case. The plan of reorganization will generally provide for the repayment of the farmer’s debts from the farmer’s future income.

Who Can be a Debtor?

Chapter 12 is only available to family farmers with regular income. Family farmers are individuals and their spouses whose debts do not exceed $1,500,000. Eighty percent of their debt and 50% of their income must come from farming operations (e.g., farming, ranching, or livestock production). A family farmer can also be a corporation, if more than 50% of the stock is held by one family and that family’s relatives (and if the stock is not publicly traded).

Employment of Counsel and Other Professionals

Any attorney or other professional (e.g., accountants, financial advisors, and consultants) retained by the Debtor, a trustee, or the Committee may only be retained with permission of the bankruptcy court. In order to be retained, the proposed professional must be “disinterested” (with certain limited exceptions). This generally means that the professional cannot have any conflicts of interest. The professional must disclose any potentially conflicting representation to the bankruptcy court and to all of the Debtor’s creditors, as well as why that representation would not impair the professional’s dedication to the proposed client. Professionals can only be paid after applying to the bankruptcy court for approval of their fees. In the application, the professional must fully describe every task performed and the amount of time spent on each task. The Court can then decide if the proposed fee is reasonable.

The Trustee’s Role in Bankruptcy Case Management

Any case involving a trustee (which can be under any Chapter of the Bankruptcy Code) adds a new player to the game. The trustee is typically an attorney well-versed in bankruptcy law and practice. In a Chapter 7 liquidation case, the trustee is mainly interested in liquidating the Debtor’s assets as quickly as possible for the greatest amount of money available. The trustee is also charged with the responsibility of investigating avoidable transfers, such as preferences and fraudulent conveyances, and then filing lawsuits to recoup those funds. As the trustee is impartial, she is a good resource for investigating any possible misdeeds of management which occurred before her appointment.

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