Chapter 12 is the reorganization chapter in the Bankruptcy Code for family farmers or family fishermen. The Code defines a "family farmer" as an individual or entity (corporation, LLC) that has less than $3,544,525 of total debt (secured and unsecured), with not less than 50% of the debt (excluding the principal residence) related to the farming operation, and with more than 50% of the individual's or entity's gross income arising from the farming operation. The family farmer must also have regular and stable income sufficient to support a plan. A family fisherman is defined as an individual with less than $1,642,500 of total debt (secured and unsecured), with not less than 80% of his or her debt (excluding the principal residence) arising from the commercial fishing operation, and with not less than 50% of the individual's gross income arising from the commercial fishing operation.
In Maine, a Chapter 12 case proceeds much like a case in Chapter 13. The Chapter 13 Trustee has been designated as the Chapter 12 Trustee for all Chapter 12 cases. The forms used in Chapter 13 have been adapted for use in Chapter 12, and both the confirmation of plans and allowance and disallowance of claims use the procedures created in Chapter 13.
Chapter 12 cases start with a family farmer or family fisherman filing a petition and schedules. The automatic stay is effective upon the filing of the case, and creditors must cease all collection activity immediately. The Chapter 12 family farmer or fisherman (hereinafter referred to as the "debtor") meet with the Chapter 12 Trustee for the Section 341 meeting, at which creditors may appear. The debtor must appear in person, with counsel, and testify, under oath. Creditors may question the debtor at the meeting regarding the debtor's financial condition and the extent to which the debtor has developed a plan of reorganization.
A major difference between Chapter 12 and Chapter 13 is that in Chapter 13, a debtor must file his or her plan at the filing of the case, or within 15 days thereafter, and must commence payments under the plan 30 days after filing the petition. In Chapter 12, a plan must be filed within 90 days of the filing of the petition, with payments to begin promptly thereafter. The additional time for the filing of the plan is important in Chapter 12, because frequently there are significant secured debts and complicated financial arrangements, with cross collateralization of the debt. Debtors in Chapter 12 need the extra time to determine the best means of reorganization given the particular economic and governmental conditions existing at the time of the filing of the case.
After the Section 341 meeting and the filing of the plan, the Debtor must make regular payments to the Chapter 12 Trustee and obtain confirmation of the plan. The debtor must also provide the Trustee with proof of applicable insurances and file monthly reports demonstrating business income and expenses. The reports are similar to those filed by business debtors in Chapter 13. The Court will confirm the Chapter 12 plan if the debtor is current with plan payments, has insurance, and is filing regular reports. After confirmation, the debtor must continue regular plan payments and otherwise perform under the plan.
At the conclusion of plan payments, the debtor obtains a discharge from the Court of all debt not paid in full through the plan, and the Court closes the case.