Bankruptcy Attorney in Michigan  

Walter A. Metzen, Michigan Bankruptcy Attorney

Board Certified Consumer Bankruptcy Specialist

American Board of Bankruptcy Certification



 Bankruptcy Basics: The Discharge in Bankruptcy

Chapter 12
Family Farmer or Family Fisherman


Chapter 12 is designed for “family farmers” or
“family fishe
rmen” 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. Under chapter 12, debtors propose a
repayment plan to make installments to
creditors over three to five years. Generally,
the plan must provide for payments over three
years unless the court approves a longer
period “for cause.” But unless the plan
proposes to pay 100% of domestic support
claims (i.e., child support and alimony) if any
exist, it must be for five years and must
include all of the debtor’s disposable income.
In no case may a plan provide for payments
over a period longer than five years. 11 U.S.C.
In tailoring bankruptcy law to meet the
economic realities of family farming and the
family fisherman, chapter 12 eliminates many
of the barriers such debtors would face if
seeking to reorganize under either chapter 11
or 13 of the Bankruptcy Code. For example,
chapter 12 is more streamlined, less
complicated, and less expensive than chapter
11, which is better suited to large corporate
reorganizations. In addition, few family
farmers or fishermen find chapter 13 to be
advantageous because it is designed for wage
earners who have smaller debts than those
facing family farmers. In chapter 12, Congress
sought to combine the features of the
Bankruptcy Code which can provide a
framework for successful family farmer and
fisherman reorganizations.
The Bankruptcy Code provides that only a
family farmer or family fisherman with
“regular annual income” may file a petition
for relief under chapter 12. 11 U.S.C.
101(18), 101(19A), 109(f). The purpose of
this requirement is to ensure that the debtor’s
annual income is sufficiently stable and
regular to permit the debtor to make payments
under a chapter 12 plan. But chapter 12 makes
allowance for situations in which family
farmers or fishermen have income that is
seasonal in nature. Relief under chapter 12 is
voluntary, and only the debtor may file a
petition under the chapter.
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 petition is filed in
order to qualify for relief under chapter 12:
1. The individual or husband and wife must
be engaged in a farming operation or a
commercial fishing operation.
2. The total debts (secured and unsecured) of
the operation must not exceed $3,544,525 (if
a farming operation) or $1,642,500 (if a
commercial fishing operation).
3. If a family farmer, at least 50%, and if
family fisherman at least 80%, of the total
debts that are fixed in amount (exclusive of
debt for the debtor’s home) must be related to
the farming or commercial fishing operation.
4. More than 50% of the gross income of the
individual or the husband and wife for the
preceding tax year (or, for family farmers
only, for each of the 2nd and 3rd prior tax years)
must have come from the farming or
commercial fishing operation.
In order for a corporation or partnership to fall
within the second category of debtors eligible
to file as family farmers or family fishermen,
the corporation or partnership must meet each
of the following criteria as of the date of the
filing of the petition:
1. More than one-half the outstanding stock or
equity in the corporation or partnership must
be owned by one family or by one family and
its relatives.
2. The family or the family and its relatives
must conduct the farming or commercial
fishing operation.
3. More than 80% of the value of the
corporate or partnership assets must be related
to the farming or fishing operation.
4. The total indebtedness of the corporation or
partnership must not exceed $3,544,525 (if a
farming operation) or $1,642,500 (if a
commercial fishing operation).
5. At least 50% for a farming operation or
80% for a fishing operation of the
corporation’s or partnership’s total debts
which are fixed in amount (exclusive of debt
for one home occupied by a shareholder) must
be related to the farming or fishing operation.
6. If the corporation issues stock, the stock
cannot be publicly traded.
A debtor cannot file under chapter 12 (or any
other chapter) if during the preceding 180
days a prior bankruptcy petition was dismissed
due to the debtor’s willful failure to appear
before the court or comply with orders of the
court or was voluntarily dismissed after
creditors sought relief from the bankruptcy
court to recover property upon which they
hold liens. 11 U.S.C. 109(g), 362(d) and
(e). In addition, no individual may be a debtor
under chapter 12 or any chapter of the
Bankruptcy Code unless he or she has, within
180 days before filing, received credit
counseling from an approved credit
counseling agency either in an individual or
group briefing. 11 U.S.C. 109, 111. There
are exceptions in emergency situations or
where the U.S. trustee (or bankruptcy
administrator)1 has determined that there are
insufficient approved agencies to provide the
required counseling. If a debt management
plan is developed during required credit
counseling, it must be filed with the court.

A chapter 12 case begins by filing a petition
with the bankruptcy court serving the area
where the individual lives or where the
corporation or partnership debtor has its
principal place of business or principal assets.
Unless the court orders otherwise, the debtor
also shall file with the court (1) schedules of
assets and liabilities, (2) a schedule of current
income and expenditures, (3) a schedule of
executory contracts and unexpired leases, and
(4) a statement of financial affairs. Fed. R.
Bankr. P. 1007(b). A husband and wife may
file a joint petition or individual petitions. 11
U.S.C. 302(a). (The Official Forms may be
purchased at legal stationery stores or
downloaded from the internet at:
They are not available from the court.)
The courts must charge a $200 case filing fee
and a $39 miscellaneous administrative fee.
Normally the fees should be paid to the clerk
of the court upon filing. With the court’s
permission, however, they may be paid in
installments. 28 U.S.C. 1930(a); Fed. R.
Bankr. P. 1006(b); Bankruptcy Court
Miscellaneous Fee Schedule, Item 8. The
number of such installments is limited to four
and the debtor must make the final installment
no later than 120 days after filing the petition.
Fed. R. Bankr. P. 1006(b). For cause shown,
the court may extend the time of any
installment, provided that the last installment
is paid not later than 180 days after the filing
of the petition. Id. The debtor may also pay
the $39 administrative fee in installments. If a
joint petition is filed, only one filing fee and
one administrative fee are charged. Debtors
should be aware that failure to pay these fees
may result in dismissal of the case. 11 U.S.C.
In order to complete the Official Bankruptcy
Forms which make up the petition, statement
of financial affairs, and schedules, the debtor
will need to compile the following
1. A list of all creditors and the amounts and
nature of their claims;
2. The source, amount, and frequency of the
debtor’s income;
3. A list of all of the debtor’s property; and
4. A detailed list of the debtor’s monthly
farming and living expenses, i.e., food,
shelter, utilities, taxes, transportation,
medicine, feed, fertilizer, etc.
Married individuals must gather this
information for each spouse regardless of
whether they are filing a joint petition,
separate individual petitions, or even if only
one spouse is filing. In a situation where only
one spouse files, the income and expenses of
the non-filing spouse is required so that the
court, the trustee, and the creditors can
evaluate the household’s financial position.
When a chapter 12 petition is filed, an
impartial trustee is appointed to administer the
case. 11 U.S.C. 1202. In some districts, the
U.S. trustee appoints a standing trustee to
serve in all chapter 12 cases. 28 U.S.C.
586(b). As in chapter 13, the trustee both
evaluates the case and serves as a disbursing
agent, collecting payments from the debtor
and making distributions to creditors. 11
U.S.C. 1202.
Filing the petition under chapter 12
“automatically stays” (stops) most collection
actions against the debtor or the debtor’s
property. 11 U.S.C. 362. Filing the petition
does not, however, stay certain types of
actions listed under 11 U.S.C. 362(b). The
stay arises by operation of law and requires no
judicial action. As long as the stay is in effect,
creditors generally cannot initiate or continue
any lawsuits, wage garnishments, or even
telephone calls demanding payments. The
bankruptcy clerk gives notice of the
bankruptcy case to all creditors whose names
and addresses are provided by the debtor.
Chapter 12 also contains a special automatic
stay provision that protects co-debtors. Unless
the bankruptcy court authorizes otherwise, a
creditor may not seek to collect a “consumer
debt” from any individual who is liable with
the debtor. 11 U.S.C. 1201(a). Consumer
debts are those incurred by an individual
primarily for a personal, family, or household
purpose. 11 U.S.C. 101(8).
Between 21 to 35 days after the petition is
filed, the chapter 12 trustee will hold a
“meeting of creditors.” If the U.S. trustee or
bankruptcy administrator schedules the
meeting at a place that does not have regular
U.S. trustee or bankruptcy administrator
staffing, the meeting may be held no more
than 60 days after the debtor files. During the
meeting the trustee puts the debtor under oath
and both the trustee and creditors may ask
questions. The debtor must attend the meeting
and answer questions regarding the debtor’s
financial affairs and the proposed terms of the
debtor’s repayment plan. 11 U.S.C. 343;
Fed. R. Bankr. P. 4002. If a husband and wife
have filed a joint petition, they both must
attend the creditors’ meeting. In order to
preserve their independent judgment,
bankruptcy judges are prohibited from
attending. 11 U.S.C. 341(c). The parties
typically resolve problems with the plan either
during or shortly after the creditors’ meeting.
Generally, the debtor can avoid problems by
making sure that the petition and plan are
complete and accurate, and by consulting with
the trustee prior to the meeting.
In a chapter 12 case, to participate in
distributions from the bankruptcy estate,
unsecured creditors must file their claims with
the court within 90 days after the first date set
for the meeting of creditors. Fed. R. Bankr. P.
3002(c). A governmental unit, however, has
180 days from the date the case is filed file a
proof of claim. 11 U.S.C. 502(b)(9).
After the meeting of creditors, the debtor, the
chapter 12 trustee, and interested creditors
will attend a hearing on confirmation of the
debtor’s chapter 12 repayment plan.

Unless the court grants an extension, the
debtor must file a plan of repayment with the
petition or within 90 days after filing the
petition. 11 U.S.C. 1221. The plan, which
must be submitted to the court for approval,
provides for payments of fixed amounts to the
trustee on a regular basis. The trustee then
distributes the funds to creditors according to
the terms of the plan, which typically offers
creditors less than full payment on their
There are three types of claims: priority,
secured, and unsecured. Priority claims are
those granted special status by the bankruptcy
law, such as most taxes and the costs of
bankruptcy proceeding.2 Secured claims are
those for which the creditor has the right to
liquidate certain property if the debtor does
not pay the underlying debt. In contrast to
secured claims, unsecured claims are generally
those for which the creditor has no special
rights to collect against particular property
owned by the debtor.
A chapter 12 plan usually lasts three to five
years. It must provide for full payment of all
priority claims, unless a priority creditor
agrees to different treatment of the claim or, in
the case of a domestic support obligation,
unless the debtor contributes all “disposable
income” - discussed below - to a five-year
plan. 11 U.S.C. 1222(a)(2), (4).
Secured creditors must be paid at least as
much as the value of the collateral pledged for
the debt. One of the features of Chapter 12 is
that payments to secured creditors can
sometimes continue longer than the three-tofive-
year period of the plan. For example, if
the debtor’s underlying debt obligation was
scheduled to be paid over more than five years
(i.e., an equipment loan or a mortgage), the
debtor may be able to pay the loan off over the
original loan repayment schedule as long as
any arrearage is made up during the plan.
The plan does not have to pay unsecured
claims in full, as long as it commits all of the
debtor’s projected “disposable income” (or
property of equivalent value) to plan payments
over a 3 to 5 year period ,and as long as the
unsecured creditors are to receive at least as
much as they would receive if the debtor’s
nonexempt assets were liquidated under
chapter 7. 11 U.S.C. 1225. “Disposable
income” is defined as income not reasonably
necessary for the maintenance or support of
the debtor or dependents or for making
payments needed to continue, preserve, and
operate the debtor’s business. 11 U.S.C.
Within 45 days after filing the plan, the
presiding bankruptcy judge decides at a
“confirmation hearing” whether the plan is
feasible and meets the standards for
confirmation under the Bankruptcy Code. 11
U.S.C. 1224, 1225. Creditors, who receive
20 days’ notice, may appear at the hearing and
object to confirmation. Fed. R. Bankr. P.
2002(a)(8). While a variety of objections may
be made, the typical arguments are that
payments offered under the plan are less than
creditors would receive if the debtor’s assets
were liquidated, or that the plan does not
commit all of the debtor’s disposable income
for the three-to-five-year period of the plan.
If the court confirms the plan, the chapter 12
trustee will distribute funds received in
accordance with the terms of the plan.11
U.S.C. 1226(a). If the court does not
confirm the plan, the debtor may file a
modified plan. 11 U.S.C. 1223. The debtor
may also convert the case to a liquidation
under chapter 7.3 11 U.S.C. 1208(a). If the
debtor fails to confirm a plan and the case is
dismissed, the court may authorize the trustee
to keep some of the funds for costs, but the
trustee must return all remaining funds to the
debtor (other than funds already disbursed to
creditors). 11 U.S.C. 1226(a).
On occasion, changed circumstances will
affect the debtor’s ability to make plan
payments. A creditor may object or threaten to
object to a plan, or the debtor may
inadvertently have failed to list all creditors. In
such instances, the plan may be modified
either before or after confirmation. 11 U.S.C.
1223, 1229. Modification after
confirmation is not limited to an initiative by
the debtor, but may also be made at the
request of the trustee or an unsecured
creditor.11 U.S.C. 1229(a).
The provisions of a confirmed plan bind the
debtor and each creditor. 11 U.S.C. 1227.
Once the court confirms the plan, the debtor
must make the plan succeed. The debtor must
make regular payments to the trustee, which
will require adjustment to living on a fixed
budget for a prolonged period. Furthermore,
while confirmation of the plan entitles the
debtor to retain property as long as payments
are made, the debtor may not incur any
significant new debt without consulting the
trustee, because additional debt may
compromise the debtor’s ability to complete
the plan.11 U.S.C. 1222(a)(1), 1227. In any
event, failure to make the plan payments may
result in dismissal of the case. 11 U.S.C.
1208(c). In addition, the court may dismiss
the case or convert the case to a liquidation
case under chapter 7 of the Bankruptcy Code
upon a showing that the debtor has committed
fraud in connection with the case. 11 U.S.C.
The debtor will receive a discharge after
completing all payments under the chapter 12
plan as long as the debtor certifies (if
applicable) that all domestic support
obligations that came due before making such
certification have been paid. The discharge
has the effect of releasing the debtor from all
debts provided for by the plan allowed under
section 503 or disallowed under section 502,
with limited exceptions. Those creditors who
were provided for in full or in part under the
plan may no longer initiate or continue any
legal or other action against the debtor to
collect the discharged obligations.
Certain categories of debts are not discharged
in chapter 12 proceedings. 11 U.S.C.
1228(a). Those categories include debts for
alimony and child support; money obtained
through filing false financial statements; debts
for willful and malicious injury to person or
property; debts for death or personal injury
caused by the debtor’s operation of a motor
vehicle while the debtor was intoxicated; and
debts from fraud or defalcation while acting in
a fiduciary capacity, embezzlement or larceny.
The bankruptcy law regarding the scope of a
chapter 12 discharge is complex, however,
and debtors should consult competent legal
counsel in this regard prior to filing. Those
debts which will not be discharged should be
paid in full under a plan. With respect to
secured obligations, those debts may be paid
beyond the end of the plan payment period
and, accordingly, are not discharged.
The court may grant a “hardship discharge” to
a chapter 12 debtor even though the debtor has
failed to complete plan payments. 11 U.S.C.
1228(b). Generally, a hardship discharge is
available only to a debtor whose failure to
complete plan payments is due to
circumstances beyond the debtor’s control and
through no fault of the debtor. Creditors must
have received at least as much as they would
have received in a chapter 7 liquidation case,
and the debtor must be unable to modify the
plan. For example, injury or illness that
precludes employment sufficient to fund even
a modified plan may serve as the basis for a
hardship discharge. The hardship discharge
does not apply to any debts that are
nondischargeable in a chapter 7 case. 11
U.S.C. 523.
1. In North Carolina and Alabama, bankruptcy
administrators perform similar functions that
U.S. trustees perform in the remaining fortyeight
states. The bankruptcy administrator
program is administered by the Administrative
Office of the United States Courts, while the
U.S. trustee program is administered by the
Department of Justice. For purposes of this
publication, references to U.S. trustees are
also applicable to bankruptcy administrators.
2. Section 507 sets forth 10 categories of
unsecured claims which Congress has, for
public policy reasons, given priority of
distribution over other unsecured claims.
3. A fee of $15 is charged for converting a
case under chapter 12 to a case under chapter



  •   Driver's License or State ID & Social Security card
  •   Pay Stubs for the past 2 months
  •   Copies of all Bills, Summons or Judgments against you by creditors
  •    Divorce Judgments or Decrees
  •   Real Estate Documents, Deeds, Recorded Mortgages, mortgage balance statements
  •   Property Tax Bills (SEV)
  •   Bank Statements for 3 months
  •   Recorded Mortgage and Deed
  •   Car Titles
  •   Income Tax Returns & W2 forms
    for the last 2 years