Under 11 U.S.C. Section 1228(a), after completing all required plan payments, and certifying that all Domestic Support Obligations ("DSO obligations") have been paid, the debtor will receive a discharge or "wipe-out" of his dischargeable debts. The discharge has the effect of releasing the debtor from liability for all of the debts provided for under the plan, and prohibiting those creditors from initiating or continuing any legal or other action against the debtor to collect the discharged debts.

Relevant Chapter 12 Articles

Filing Chapter 12 Bankruptcy Qualifications / Comparison to Chapter 13

Exceptions to Discharge

      Certain types of debts are not wiped out via the Chapter 12 discharge. These include: domestic support obligations; money obtained through presenting false or fraudulent financial statements; debts arising from fraud while acting in a fiduciary capacity, embezzlement or larceny; debts arising from willful and malicious injury by the debtor to anther's person or property; and debts for personal injury or death caused by the debtor's operation of a motor vehicle while the debtor was under the influence of alcohol or drugs. Also, any long-term secured debts which are being paid beyond the term of the plan (3-5 years) will not be wiped out.

The Hardship Discharge

      Even if the Chapter 12 Debtor does not complete all of his plan payments, he may nevertheless be entitled to a "hardship" discharge under Bankruptcy Code Section 1228(b). To get this type of discharge, the debtor needs to show: the failure to complete the plan payments was due to circumstances beyond his control and through no fault of his; creditors must have already received as much as they would get in a Chapter 7 (liquidation) case; and the debtor must be unable to successfully modify the plan. This type of discharge generally comes into play where the debtor becomes sick or gets injured, preventing him from working. This discharge does not wipe out any of the non-dischargeable debts, mentioned above.

Conclusion

      Chapter 12 provides a great vehicle for family farmers and fishermen to be able to adjust their debts and remain in business. It has many of the features of Chapter 13, but has the added attractions of being more flexible and available to a greater array of people. It is much more streamlined than Chapter 11, as it does not contain many of the arcane requirements of that Chapter, including disclosure statement hearings,, plan balloting, and the absolute priority rule. Plans can be confirmed more cheaply and quickly than in the normal Chapter 11 case, for a cost which is perhaps closer to Chapter 13. In many ways, it may be the winning strategy for the farmer or fisherman in need of financial relief.

Strategies for the Debtor

Automatic Stay, - Automatically stops most creditor action against the debtor "Lien-stripping" - Generally available in Chapters 11 and 13, "Use of "Avoiding Powers" - May let the debtor sue creditors and "undo" certain harmful transactions "Race to the Courthouse" - A bankruptcy filing allows assets to be sold by the debtor or trustee, over a reasonable period of time

Written by Henry Rendler