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There are several different types of bankruptcy authorized under federal law described by the “chapter” of the bankruptcy law authorizing each. This includes: (i) Chapter 7 also known as straight bankruptcy; (ii) Chapter 9 for cities and other governmental entities; (iii) Chapter 11 for large businesses; and (iv) Chapter 13 for individuals with regular income and relatively modest amounts of debt.
However, this article deals with Chapter 12 that allows family farmers or family fishermen with regular annual income. It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. A rancher can also be a family farmer.
This is not intended as legal advice to you because Chapter 12 is complicated and depends on your specific circumstances. If you are considering a Chapter 12, call us toll free at (877) 886-5955 for a free consultation so we can provide legal advice tailored and specific to your unique situation. There is no obligation and the call is confidential.
This is you. When someone files a Chapter 12 bankruptcy, they are called the Debtor. If you file for bankruptcy, you are a Debtor. In Chapter 12 Debtors may keep some or all of their property by paying some or all of their debts over a three to five-year period. Chapter 7 is different because in that type of bankruptcy most debts are voided or discharged but some or most property may have to be surrendered to the Trustee or Creditors.
All bankruptcy cases are handled in federal courts under rules outlined in the Bankruptcy Code. Oklahoma is divided into three United States District Court Districts: (i) the Western District headquartered in Oklahoma City; (ii) the Northern District headquartered in Tulsa; and (iii) the Eastern District headquartered in Muskogee.
The Western District of Oklahoma generally includes those counties touching and to the West of Interstate highway I-35. This includes Alfalfa, Beaver, Beckham, Blaine, Caddo, Canadian, Cimarron, Cleveland, Comanche, Cotton, Custer, Dewey, Ellis, Garfield, Garvin, Grady, Grant, Greer, Harmon, Harper, Jackson, Jefferson, Kay, Kingfisher, Kiowa, Lincoln, Logan, Major, McClain, Noble, Oklahoma, Payne, Pottawatomie, Roger Mills, Stephens, Texas, Tillman, Washita, Woods and Woodward Counties. Chapter 12 hearings in the Western District are conducted in Oklahoma City.
The Northern District of Oklahoma generally includes counties in the northeast third of the state. This includes Craig, Creek, Delaware, Mayes, Nowata, Osage, Ottawa, Pawnee, Rogers, Tulsa and Washington Counties.
The Eastern District of Oklahoma generally includes counties in the southeastern portion of the state. This includes Adair, Atoka, Bryan, Carter, Cherokee, Choctaw, Coal, Haskell, Hughes, Johnston, Latimer, LeFlore, Love, Marshall, McCurtain, McIntosh, Murray, Muskogee, Okfuskee, Okmulgee, Pittsburg, Pontotoc, Pushmataha, Seminole, Sequoyah and Wagoner Counties.
The person with ultimate authority over your Chapter 12 case is the Bankruptcy Judge often just called Judge. Each District has at least one Bankruptcy Judge; the Western District has two. While the Judge has authority over your Chapter 12, the typical Chapter 12 Debtor has limited direct contact with the Judge.
The Chapter 12 Trustee or just Trustee is a person appointed to administer Chapter 12 cases, collect Plan payments from Debtors and disburse that money to Creditors as specified in confirmed Plans among other things. The Trustee will preside at your 341 Hearing and is the primary person affiliated with the bankruptcy court that you will deal. To some degree the Trustee represents the Judge; consequently, it is very important that you cooperate with him/her.
Eligibility rules for Chapter 12 are complicated. Under the Bankruptcy Code, “family farmers” and “family fishermen” fall into two categories: (1) an individual or individual and spouse and (2) a corporation or partnership. Farmers or fishermen falling into the first category must meet each of the following four criteria as of the date the Chapter 12 Petition is filed in order to qualify for relief under chapter 12:
The rules for a corporation or partnership are even more complex. Contact us to review your situation if you contemplate filing Chapter 12 for a corporation or partnership.
Shortly after your Chapter 12 is filed, notices of the first meeting of creditors will be mailed to you and all Creditors and interested persons as required by Section 341 of the Bankruptcy Code, which is why this is often call a 341 Hearing. The Debtor and his lawyer must appear at this 341 Hearing chaired by the Trustee to answer simple questions about their affairs and the Plan.
This 341 Hearing is typically the first time you have to appear in court. You must provide certain documents like tax returns, vehicle titles and wage statements to the Trustee prior to the 341 Hearing. Subsequent appearances depend on your circumstances but you almost certainly will need to appear before the Judge at a confirmation hearing several months after the 341 Hearing.
The most important part of your Chapter 12 is your repayment plan called the Chapter 12 Plan or simply Plan. We will prepare the Plan using information you provide us outlining in detail how much each Creditor will be paid, how long the Plan will last – the Term – the values of your property and more.
For example the Bankruptcy Code designates some debts called priority debts so important that they must be paid in full. Priority debts include child support and alimony, wages you owe to employees and certain tax obligations.
Your Plan must also outline the regular payments you will make on secured debts, such as a car loan or mortgage, as well as repayment of any arrearages or delinquent amounts of your debts – the amount past due that you are behind in your payments.
Finally, the Plan must dedicate any disposable income – above your normal farm operating expenses and reasonable living expenses – that you have left after making other required payments to pay your unsecured debts like credit card or medical bills. You do not have to repay these debts in full, or at all, in some cases. You simply must agree to pay any remaining income to unsecured creditors.
The length or term of your Plan depends on the amount of your income and the amount and type of your debt. In some instances, below-median Debtors must extend their Plans beyond three years to repay a sufficient amount debt.
In Chapter 12 you must pay some debts in full; others may be paid in part. Different types of debts are paid in different ways in a Chapter 12. The Bankruptcy Code groups your debts into classes and requires your Plan to pay these different classes of debt in particular ways. Common Chapter 12 classes: are (i) secured claims, (ii) unsecured priority claims and (iii) general unsecured claims.
Secured claims are claims for debts that are secured by liens on property or collateral. If you do not pay a secured debt, the Creditor can repossess the collateral and sell it for payment. Common secured claims are home mortgages, property taxes that are liens on your property and vehicle loans. If you file a Chapter 12 and intend to keep the property that secures the debt, you must pay the debt.
Secured claims typically must be paid in full with interest in a Chapter 12. The interest rate depends on the debt. Depending on the circumstances, you may be able to satisfy the claim by paying less than the full amount owed – known as a cramdown. If the secured debt payments last longer than your Plan Term – say 10 years remaining on your farm mortgage – the full debt need not be paid off during your Plan. In that case you continue with your regular mortgage payments during the Plan and also continue with that regular payment after the Plan is completed – until your mortgage is paid in full.
Mortgage debt. Mortgages need not be paid in full during the Term of a Chapter 12. Mortgage payments are made monthly during the Plan and continue to be made after the Plan is completed. If there is a past due balance – an arrearage – it must be paid in full through the Plan during the Term. To illustrate: If a $500 monthly mortgage payment is unpaid (delinquent) for five months when your Chapter 12 is filed and $500 in late fees and interest are also due – a $3,000 arrearage – you must begin making the $500 regular monthly mortgage payments as they are due and also pay through the Plan the $3,500 arrearage with interest.
Property taxes. All past due property taxes plus interest customary in the area must be paid through the Plan.
Vehicle and Machinery Payments. If a loan on a vehicle or machinery is due in full during the Plan, you must pay the full balance in the Plan. How much you must pay, however, depends on a number of factors. If the vehicle is worth less than the debt and you bought the car more than 910 days ago, the secured claim is limited to the value of the vehicle. You pay market value of the vehicle plus interest through the Plan. The balance becomes part of your unsecured debt. This is an oversimplification that we can explain in more detail during your consultation with us.
Unsecured priority claims are claims not secured by collateral; however, the Bankruptcy Code has granted certain creditors priority over other unsecured debts. Unsecured priority claims typically must be paid in full through the Plan. Unsecured priority debts may include: (i) past due child support, (ii) past due spousal support, (iii) certain income tax debts and (iv) other past due domestic support obligations. Unsecured priority debts also include administrative expenses, such as attorney's fees and Trustee's fees. The Trustee normally receives about 10% of the Plan payments as compensation.
General unsecured claims are claims that are neither secured nor priority. Common general unsecured claims or debts include: (i) personal loans, (ii) medical bills, (iii) credit card debts and (iv) utilities. General unsecured claims are paid a portion of their debt depending on your disposable income and the value of your bankruptcy estate. Simply put, your creditors receive (i) whatever your best effort at payment will yield and (ii) at least as much as they would receive had you filed Chapter 7, which is often pennies on the dollar – or nothing.
For your Chapter 12 to succeed the Judge must first approve or confirm your Plan in writing with a Confirmation Order. The Trustee and creditors can object to various aspects of the Plan; however, we will aggressively represent you in dealing with any inappropriate objections.
Bankruptcy law allows you to keep certain property designated as exempt under Oklahoma law – exempt assets. These exempt assets primarily include your home, most of the contents of your home, clothing, tools of the trade, pension plans, guns and one vehicle among other things – all in limited amounts. We can advise you exactly what you own that is an exempt asset.
Importantly if you have given a creditor a lien on any of your exempt assets, you must pay that debt to keep the exempt asset with some limits.
If you cannot complete the Plan – for example, should you lose your job during the Plan and cannot make the Plan payments – you may seek to modify your Plan. Or, the Judge might discharge your debts because of hardship. Hardship could be something like a debilitating injury of some type.
If the Judge refuses to modify your Plan or grant a hardship discharge, you may opt to convert to a Chapter 7 or ask the Judge to dismiss your Chapter 12 returning you to the status you were in before you filed Chapter 12.
Once you complete all payments required under your Plan, all remaining debts eligible for discharge will be cancelled or discharged. This means that you are no longer legally obligated to pay such debts.
Filing a Chapter 12 Plan that will be confirmed and completed is very complex. This is just an abbreviated description of what is required with a number of details omitted to keep this from being overly long. While it is possible to file a Chapter 12 without a lawyer, that is ill advised and short sighted. Without competent advice it is possible you will lose property unnecessarily or pay more than required. We encourage you to call us at (877) 886-5955 for a free consultation to determine if you are eligible for Chapter 12 and whether a Chapter 12 is in your best interests.
This is not intended as legal advice because bankruptcy is complicated and depends on the specific circumstances unique to the Debtor. If you are considering a bankruptcy, call us toll free at (877) 886-5955 for a free consultation so we can provide legal advice tailored to your specific unique situation. There is no obligation and the call is confidential.