Bankruptcy FAQs

Bankruptcy

Answer to Common Bankruptcy Questions

A decision to file for bankruptcy should be made only after determining that bankruptcy is the best way to deal with your financial problems. This brochure can not explain every aspect of the bankruptcy process. If you still have questions after reading it, you should speak with an attorney familiar with bankruptcy or a paralegal working for an attorney.

What is Bankruptcy?

Bankruptcy is a legal proceeding in which a person who cannot pay his or her bills can get a fresh financial start. The right to file for bankruptcy is provided by federal law, and all bankruptcy cases are handled in federal court. Filing bankruptcy immediately stops all of your creditors from seeking to collect debts from you, at least until your debts are sorted out according to the law. 

What Can Bankruptcy Do for Me?
Bankruptcy may make it possible for you to:
  • Eliminate the legal obligation to pay most or all of your debts. This is called a “discharge” of debts. It is designed to give you a fresh financial start.
  • Stop foreclosure on your house or mobile home and allow you an opportunity to catch up on missed payments. (Bankruptcy does not, however, automatically eliminate mortgages and other liens on your property without payment.)
  • Prevent repossession of a car or other property, or force the creditor to return property even after it has been repossessed. 
  • Stop wage garnishment, debt collection harassment, and similar creditor actions to collect a debt. 
  • Restore or prevent termination of utility service. 
  • Allow you to challenge the claims of creditors who have committed fraud or who are otherwise trying to collect more than you really owe.
 What Bankruptcy Cannot Do
Bankruptcy cannot, however, cure every financial problem. Nor is it the right step for every individual. In bankruptcy, it is usually not possible to:
  • Eliminate certain rights of “secured” creditors. A “secured” creditor has taken a mortgage or other lien on property as collateral for the loan. Common examples are car loans and home mortgages. You can force secured creditors to take payments over time in the bankruptcy process and bankruptcy can eliminate your obligation to pay any additional money if your property is taken. Nevertheless, you generally cannot keep the collateral unless you continue to pay the debt. 
  • Discharge types of debts singled out by the bankruptcy law for special treatment, such as child support, alimony, certain other debts related to divorce, most student loans, court restitution orders, criminal fines, and some taxes. 
  • Protect cosigners on your debts. When a relative or friend has co-signed a loan, and the consumer discharges the loan in bankruptcy, the cosigner may still have to repay all or part of the loan.
  • Discharge debts that arise after bankruptcy has been filed.
 What Different Types of Bankruptcy Cases Should I Consider?
There are four types of bankruptcy cases provided under the law: 
  • Chapter 7 is known as “straight” bankruptcy or “liquidation.” It requires a debtor to give up property which exceeds certain limits called “exemptions,” so the property can be sold to pay creditors. 
  • Chapter 11, known as “reorganization,” is used by businesses and a few individual debtors whose debts are very large.
  • Chapter 12 is reserved for family farmers and fishermen.
  • Chapter 13 is called “debt adjustment.” It requires a non-business debtor to file a plan to pay debts (or parts of debts) from current income.  
Most individuals filing bankruptcy will want to file under either chapter 7 or chapter 13. Either type of case may be filed individually or by a married couple filing jointly.
If your income is above the median income for a family the size of your household in your state, you may have to file a chapter 13 case (the national median family income for a family of 4 in 2004 was approximately $63,012–your state’s figures may be higher or lower). A higher-income consumer must fill out “means test” forms requiring detailed information about income and expenses. If, under standards in the law, the consumer is found to have a certain amount left over that could be paid to unsecured creditors, the bankruptcy court may decide that the consumer cannot file a chapter 7 case, unless there are special extenuating circumstances.  

Chapter 7 (Straight Bankruptcy)
In a bankruptcy case under chapter 7, you file a petition asking the court to discharge your debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) your debts in exchange for your giving up property, except for “exempt” property which the law allows you to keep. In most cases, all of your property will be exempt. But property which is not exempt is sold, with the money distributed to creditors.
If you want to keep property like a home or a car and are behind on the payments on a mortgage or car loan, a chapter 7 case probably will not be the right choice for you. That is because chapter 7 bankruptcy does not eliminate the right of mortgage holders or car loan creditors to take your property to cover your debt. 

Chapter 13 (Reorganization)
In a chapter 13 case you file a “plan” showing how you will pay off some of your past-due and current debts over three to five years. The most important thing about a chapter 13 case is that it will allow you to keep valuable property–especially your home and car–which might otherwise be lost, if you can make the payments which the bankruptcy law requires to be made to your creditors. In most cases, these payments will be at least as much as your regular monthly payments on your mortgage or car loan, with some extra payment to get caught up on the amount you have fallen behind. 
You should consider filing a chapter 13 plan if you: 
  1. Own your home and are in danger of losing it because of money problems;
  2. Are behind on debt payments, but can catch up if given some time;
  3. Have valuable property which is not exempt, but you can afford to pay creditors from your income over time. 
You will need to have enough income in chapter 13 to pay for your necessities and to keep up with the required payments as they come due.  

What Does It Cost to File for Bankruptcy?
Aside from attorney’s fees, the bankruptcy court has its own filing fees. The Chapter 7 filing fee is $299.00, and the chapter 13 filing fee is $274.00, whether for one person or a married couple. The court may allow you to pay this filing fee in installments if you cannot pay all at once. If you are unable to pay the filing fee in installments, you may request that the court waive the filing fee. If you hire an attorney, you will also have to pay the attorney’s fees you agree to.

What Must I Do Before Filing Bankruptcy?
You must receive budget and credit counseling from an approved credit counseling agency within 180 days before your bankruptcy case is filed. The agency will review possible options available to you in credit counseling and assist you in reviewing your budget. Different agencies provide the counseling in-person, by telephone, or over the Internet. If you decide to file bankruptcy, you will need to file with the bankruptcy forms in your case a certificate from the agency stating that you received the counseling. 
If you decide to go ahead with bankruptcy, you should be very careful in choosing an agency for the required counseling. It is extremely difficult to sort out the good counseling agencies from the bad ones. Many agencies are legitimate, but many are simply rip-offs. And being an “approved” agency for bankruptcy counseling is no guarantee that the agency is good. It is also important to understand that even good agencies won’t be able to help you much if you’re already too deep in financial trouble.  
Some of the approved agencies offer debt management plans (also called DMPs). This is a plan to repay some or all of your debts in which you send the counseling agency a monthly payment that it then distributes to your creditors. Debt management plans can be helpful for some consumers. For others, they are a terrible idea. The problem is that many counseling agencies will pressure you into a debt management plan as a way of avoiding bankruptcy whether it makes sense for you or not. It is important to keep in mind these important points: 
  • Bankruptcy is not necessarily to be avoided at all costs. In many cases, bankruptcy may actually be the best choice for you. 
  • If you sign up for a debt management plan that you can’t afford, you may end up in bankruptcy anyway.
  • There are approved agencies for bankruptcy counseling that do not offer debt management plans.   

What Property Can I Keep?
In a chapter 7 case, you can keep all property which the law says is “exempt” from the claims of creditors. You can choose between your exemptions under your state law or under federal law. In many cases, the federal exemptions are better.
Federal exemptions per person include:
  • $21,625 in equity in your home; 
  • $3,450 in equity in your car; 
  • $550 per item in any household goods up to a total of $11,525; 
  • $2,175 in things you need for your job (tools, books, etc.); 
  • $1,150 in any property, plus part of the unused exemption in your home, up to $10,825; 
  • Your right to receive certain benefits such as social security, unemployment compensation, veteran’s benefits, public assistance, and pensions–regardless of the amount. 
The amounts of the exemptions are doubled when a married couple files together.
In determining whether property is exempt, you must keep a few things in mind. The value of property is not the amount you paid for it, but what it is worth now. Especially for furniture and cars, this may be a lot less than what you paid or what it would cost to buy a replacement. 
You also only need to look at your equity in property. This means that you count your exemptions against the full value minus any money that you owe on mortgages or liens. For example, if you own a $50,000 house with a $40,000 mortgage, you count your exemptions against the $10,000 which is your equity if you sell it. 
While your exemptions allow you to keep property even in a chapter 7 case, your exemptions do not make any difference to the right of a mortgage holder or car loan creditor to take the property to cover the debt if you are behind. In a chapter 13 case, you can keep all of your property if your plan meets the requirements of the bankruptcy law. In most cases, you will have to pay the mortgages or liens as you would if you didn’t file bankruptcy. 

What Will Happen to My Home and Car If I File Bankruptcy?
In most cases, you will not lose your home or car during your bankruptcy case as long as your equity in the property is fully exempt. Even if your property is not fully exempt, you will be able to keep it, if you pay its non-exempt value to creditors in chapter 13. 
However, some of your creditors may have a “security interest” in your home, automobile or other personal property. This means that you gave that creditor a mortgage on the home or put your other property up as collateral for the debt. Bankruptcy does not make these security interests go away. If you don’t make your payments on that debt, the creditor may be able to take and sell the home or the property, during or after the bankruptcy case. 
There are several ways that you can keep collateral or mortgaged property after you file bankruptcy. You can agree to keep making your payments on the debt until it is paid in full. Or you can pay the creditor the amount that the property you want to keep is worth. In some cases involving fraud or other improper conduct by the creditor, you may be able to challenge the debt. If you put up your household goods as collateral for a loan (other than a loan to purchase the goods), you can usually keep your property without making any more payments on that debt. 

Can I Own Anything After Bankruptcy?
Yes! Many people believe they cannot own anything for a period of time after filing for bankruptcy. This is not true. You can keep your exempt property and anything you obtain after the bankruptcy is filed. However, if you receive an inheritance, a property settlement, or life insurance benefits within 180 days after filing for bankruptcy, that money or property may have to be paid to your creditors if the property or money is not exempt. 

Will Bankruptcy Wipe Out All My Debts?
Yes, with some exceptions. Bankruptcy will not normally wipe out: 
  1. Money owed for child support or alimony, fines, and some taxes;
  2. Debts not listed on your bankruptcy petition;
  3. Loans you got by knowingly giving false information to a creditor, who reasonably relied on it in making you the loan;
  4. Debts resulting from “willful and malicious” harm;
  5. Most student loans, except if the court decides that payment would be an undue hardship;
  6. Mortgages and other liens which are not paid in the bankruptcy case (but bankruptcy will wipe out your obligation to pay any additional money if the property is sold by the creditor).
Will I Have to Go to Court?
In most bankruptcy cases, you only have to go to a proceeding called the “meeting of creditors” to meet with the bankruptcy trustee and any creditor who chooses to come. Most of the time, this meeting will be a short and simple procedure where you are asked a few questions about your bankruptcy forms and your financial situation.
Occasionally, if complications arise, or if you choose to dispute a debt, you may have to appear before a judge at a hearing. If you need to go to court, you will receive notice of the court date and time from the court and/or from your attorney. 

What Else Must I Do to Complete My Case?
After your case is filed, you must complete an approved course in personal finances. This course will take approximately two hours to complete. Your attorney can give you a list of organizations that provide approved courses, or you can check the website for the United States Trustee Program office at www.usdoj.gov/ust. In a chapter 7 case, you should sign up for the course soon after your case is filed. If you file a chapter 13 case, you should ask your attorney when you should take the course.  

Will Bankruptcy Affect My Credit?
There is no clear answer to this question. Unfortunately, if you are behind on your bills, your credit may already be bad. Bankruptcy will probably not make things any worse. 
The fact that you’ve filed a bankruptcy can appear on your credit record for ten years. But because bankruptcy wipes out your old debts, you are likely to be in a better position to pay your current bills, and you may be able to get new credit. 

What Else Should I Know?
Utility services–Public utilities, such as the electric company, cannot refuse or cut off service because you have filed for bankruptcy. However, the utility can require a deposit for future service and you do have to pay bills which arise after bankruptcy is filed. 
Discrimination–An employer or government agency cannot discriminate against you because you have filed for bankruptcy. 
Driver’s license–If you lost your license solely because you couldn’t pay court-ordered damages caused in an accident, bankruptcy will allow you to get your license back. 
Co-signers–If someone has co-signed a loan with you and you file for bankruptcy, the co-signer may have to pay your debt. If you file a chapter 13, you may be able to protect co-signers, depending upon the terms of your chapter 13 plan. 

How Do I Find a Bankruptcy Attorney?
As with any area of the law, it is important to carefully select an attorney who will respond to your personal situation. The attorney should not be too busy to meet you individually and to answer questions as necessary.  
The best way to find a trustworthy bankruptcy attorney is to seek recommendations from family, friends or other members of the community, especially any attorney you know and respect. You should carefully read retainers and other documents the attorney asks you to sign. You should not hire an attorney unless he or she agrees to represent you throughout the case. 
In bankruptcy, as in all areas of life, remember that the person advertising the cheapest rate is not necessarily the best. Many of the best bankruptcy lawyers do not advertise at all.
Document preparation services also known as “typing services” or “paralegal services” involve non-lawyers who offer to prepare bankruptcy forms for a fee. Problems with these services often arise because non-lawyers cannot offer advice on difficult bankruptcy cases and they offer no services once a bankruptcy case has begun. There are also many shady operators in this field, who give bad advice and defraud consumers. 
When first meeting a bankruptcy attorney, you should be prepared to answer the following questions: 
  • What types of debt are causing you the most trouble? 
  • What are your significant assets? 
  • How did your debts arise and are they secured? 
  • Is any action about to occur to foreclose or repossess property or to shut off utility service?  
  • What are your goals in filing the case?
Can I File Bankruptcy Without an Attorney?
Although it may be possible for some people to file a bankruptcy case without an attorney, it is not a step to be taken lightly. The process is difficult and you may lose property or other rights if you do not know the law. It takes patience and careful preparation. Chapter 7 (straight bankruptcy) cases are easier. Very few people have been able to successfully file chapter 13 (debt adjustment) cases on their own. 
Remember: The law often changes. Each case is different. The above comments are meant to give you general information and not to give you specific legal advice.

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Meeting with Your Bankruptcy Attorney

During my first meeting with the debtor, I let the debtor tell his or her story. It is okay to keep the client on track, but I make sure the debtor feels like he or she has told you everything that he or she feels is important regarding his financial and emotional situation.

Then, it is my turn to explain to the debtor what bankruptcy is all about. 

A good starting point is a discussion of exemptions: what assets are exempt from the bankrupt estate by state or federal laws. Then, it is easy to transfer the story into a bankruptcy context by describing how the debtor’s property is treated in bankruptcy. Next, I discuss the three types of claims in bankruptcy: secured, priority and unsecured. Then, I tell the debtor what his or her options are regarding property encumbered by a security interest: surrender, reaffirm or redeem. Thereafter I explain the significance of priority claims. Finally, I describe “unsecured claims.” I usually explain that unsecured claims are all claims other than secured claims and priority claims and include such items as credit card bills, medical bills, deficiency claims, etc.

Next, I discuss the significance of and the importance of the discharge. I tell the debtor that all claims are discharged except: a) secured claims that are reaffirmed, b) certain non-dischargeable debts, and c) claims that are successfully challenged by other parties, such as creditors or the trustee.

Then, I explain other features of the chapter 7 bankruptcy case; such as: preferences, fraudulent transfers, property acquired post-petition that can be included in the debtor’s estate.

I make sure the debtor is aware that he or she does not have legal protection until his or her case is filed with the Bankruptcy Court. I tell the debtor that if he or she is filing bankruptcy to stop a foreclosure or repossession of property, it is his or her responsibility to turn in all information and materials and set an appointment to allow his or her case to be filed with the Bankruptcy Court before the foreclosure or repossession takes place.  

When meeting with a new client, I make sure that he or she is aware of the following information:

  1. You must list all assets. Failure to list any assets may result in federal prosecution.
  2. You must list all debts you owe. 
  3. If you owe child support, alimony, or maintenance, failure to make these payments on time during your bankruptcy will result in your case being dismissed.
  4. You must receive a certificate of completion from a credit counseling course before you can file bankruptcy. You must also receive a financial management course before you can receive your discharge.
  5. If you owe a debt to the bank where your bank account is, the bank may freeze any funds that are in your account as of the date of filing and apply those funds to your debt.
  6. Any inheritance or insurance benefits resulting from someone’s death which you are entitled to receive within six (6) months from the date of filing will be property of your bankruptcy estate.
  7. Failure to attend your creditor’s hearing or other court hearing may result in the Court denying your discharge or dismissing your case.
  8. You must list all “future” interest that you own, such as a remainder interest in property (property you receive when someone else dies) or a present interest in a trust.
  9. You must list all contingent interest such as “causes of action” or possible lawsuit claims. Consult with your attorney as to how to value such claims.
  10. If you operate a business, you must receive permission from the trustee to continue operating the business. If the business is solely owned (not incorporated), the business assets become property of the estate. If the business is incorporated, your stock interest becomes property of the estate.
  11. If you do reaffirm a debt, it is mandatory that you remain current on your monthly installment payments. Failure to do so may result in the reaffirmation agreement being denied and the loss of any property securing the debt. 
  12. Certain debts, including property taxes, income taxes, employee taxes, student loans, debts owed to a former spouse are not dischargeable and must be paid timely. For Chapter 13 cases, the Debtors are responsible for all post-filing taxes, including income and property taxes.
  13. Charges made on credit cards in excess of $600.00 within 90 days of filing the bankruptcy and cash advances made in excess of $825 within 70 days of filing the bankruptcy are presumed to be nondischargeable and the creditor may file an objection to such debts being discharged.
  14. Bankruptcy can adversely affect your credit rating. It can stay on your credit report for a period of up to 10 years. However, financial institutions or their lending institutions will base their decisions on their individual lending policies. 
I give the debtor this list in written form with a place for him or her to sign, indicating an acknowledgment of receiving and understanding the information. I tell him or her that if he or she does not clearly understand the information, he or she needs to consult with me before signing.

I next explain the bankruptcy process. I tell him or her that we will use the worksheet information to prepare his or her schedules and statement of financial affairs. We will set up an appointment to finalize the bankruptcy filing and the meeting may take up to two hours. I tell him or her the significance of the filing of the bankruptcy petition: that it imposes the automatic stay. I tell the debtor that what he or she can expect at the Sec. 341 meeting (or creditors meeting), that the Trustee will announce that creditors and parties have 60 days to file objections to discharge or objections to dischargeability of claims, and the effect of the discharge once and if it is granted.

Finally, I tell the debtor that he or she is not my client until he returns with the completed worksheet and the retainer. Until then, he or she has no obligation to me nor I to him or her.

I also tell the debtor that he or she must deliver to my office the completed worksheet which I would provide, plus all documents requested with that worksheet, plus the attorney's fees and filing fee before the next scheduled appointment. He or she will meet with my legal assistant who will make sure that the debtor has delivered all the appropriate information. My legal assistant will use the worksheet and related documents to prepare the bankruptcy documents. My legal assistant will also arrange a subsequent appointment with the debtor for him or her to work with me on finishing the preparation of the petition and other bankruptcy documents.

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Common Issues Related to Reorganization Cases

All reorganization cases have the following issues in common:
Cash Collateral request: 
Factors Debtor’s motion should consider in requesting use of cash collateral:
  • Crop yields
a) Market price
b) Other income
c) Expenses
  • Business revenue projections
  • Source of supplies
  • Marketing outlet
  • Availability of insurance
  • Attempt to find alternative sources of financing
  • Debtor’s capacity to perform
  • Value of creditor’s collateral    
 Things Court should consider:
  1. Debtor spending should be limited to projections
  2. Granting of replacement lien
  3. Assignment of insurance policies
  4. Monitoring Debtor’s business operations
  5. Debtor must show reasonable prospect of confirming a plan.
  6. Payment of interest
  7. All funds should be deposited in DIP account.
Motion for Relief from Stay § 362(d)
  1. For cause, including the lack of adequate protection of an interest in property of such property; or
  2. grounds:
(A) Debtor has no equity in the collateral. Creditor has burden; once established burden is on debtor to prove all other facts to show creditor is not entitled to stay.
and

(B) The collateral is not necessary for an effective reorganization. It is not enough to show that the property is necessary, or that the plan cannot function without the collateral. The debtor must also show that the property at issue is necessary for a reorganization “that is in prospect” In re United Savings Association v. Timbers of Inwood Forest Assc., 484 U.S. 365 (1988). The Debtor should be able to show that he or she is making progress towards filing a plan, and that the debtor has a reasonable chance of confirming a plan within a reasonable time. This implies that the debtors plan is confirmable. The biggest issue is feasibility.

Factors that a creditor will consider in seeking a lift of stay:
  1. Debtor has not taken proper care of collateral
  2. Debtor has not maintained insurance coverage
  3. Debtor has failed to pay property taxes
  4. Debtor is failing to pay on senior debt and therefore accruing interest, resulting in junior creditor losing collateral position.
  5. The value of the collateral is depreciating.
  6. Debtor does not have prospect for reorganizing
Does the trustee take a position? What about feasibility?

 Avoidance of liens Current law §522(f)(3)(B). Debtor may not avoid the fixing of a lien on an interest of the debtor if the lien is a nonpossessory, nonpurchase-money security interest in implements, … tools of trade, … exceeds $5,475.00. If filing as a couple, can you avoid $10,950.00.

Preference § 547(e)(3) What about floating liens. Hypo: Debtor buys cattle or plants crops within 90 days of filing. 

Anticipate plan Discuss how computer plan computes payments. Discuss purpose of liquidation analysis and valuation of asset exhibit. Emphasize again the importance of cash flow projections.

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Bankruptcy Alternatives

In my first meeting with the debtor, the options I must advise the debtor include the following:

A. Restructuring
  1. FSA settlements
  2. SBA compromise
B. Workout considerations. Concern: oftentimes a workout is simply an opportunity for the bank to strengthen their loan and lien position.

C. Filing bankruptcy.

In order to evaluate possible restructuring, workouts, or bankruptcy reorganizations, it is imperative that the debtor develop a realistic cash flow projection.

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Considerations in Filing a Chapter 11

Filing a Plan 11 U.S.C. § 1121(b): Only debtor can file a plan within the first 120 days. A party in interest can file a plan if the debtor fails to file a plan within 120 days, or fails to get a plan accepted within 180 days, or a trustee is appointed. § 1121(c) Court can reduce or increase time for cause, but will it? § 1121(d)

Disclosure Statement 11 U.S.C. § 1125(b): Debtor cannot solicit an acceptance or rejection of a plan unless a plan (or plan summary) and an approved written disclosure statement is sent to claim or interest holders prior to solicitation.

Confirmation A Plan cannot be confirmed unless each class of claims or interests accepts the plan, or the plan does not discriminate unfairly, and is “fair and equitable” with each class that does not accept the plan. §§ 1129(a)(9) and (b)(1) A class that is not impaired is presumed to have accepted the plan. § 1126(f) A class of claims accepts the plan if at least two-thirds in amount and more than one-half in number of the creditors in a class accepts the plan.

In order for a plan to be “fair and equitable” it must meet the requirements of 11 U.S.C. § 1129(b)(2). 

If the plan includes claims which are impaired than at least one class of claims impaired under the plan, other than an insider, must accept the plan. 11 U.S.C. § 1129(a)(10)

As to each impaired class, each claim holder must either accept the plan or receive property with a value not less that the claimant would receive under Chapter 7. 11 U.S.C. § 1129(a)(7)(A)

The plan must be feasible! The court must find that the “confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor. . . 11 U.S.C. § 1129(a)(9)(B)

Chapter 11 Small Business Confirmation Process:

The Plan. Only the debtor can file a plan during the first 180 days after the petition is filed. 11 U.S.C. § 1121(e)(1). Otherwise a plan and disclosure statement must be filed within 300 days. § 1121(e)(2) 

The Disclosure Statement The court may conditionally approve a disclosure statement subject to final approval after notice and hearing. Acceptance and rejections of a plan may be solicited based upon a conditionally approved disclosure statement. It must be mailed at least 10 days prior to the confirmation hearing. The hearing on the disclosure statement may be combined with a hearing on confirmation of the plan. 11 U.S.C. § 1125(f)

Confirmation The requirements of confirmation of a small business Chapter 11 plan are the same as other Chapter 11 plans.

 Analysis of Disclosure Statement
I.      Introduction

II.    Historical Material
A.      Background
B.      History
C.      Reason for Bankruptcy
D.      Current Status of Operations

III.   Measures Taken to Improve Performance

IV.   Liquidation Analysis

V.    Disclosure Relating to Feasibility
        A.      Proposed Plan Payments
        B.      Financial Projections
        C.      Means of Execution of Plan
        D.      Business Hopes and Plans
        E.       Request for Conditional Confirmation

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Considering Chapter 12

The attorney must first decide if the debtor is eligible to file Chapter 12. Does the debtor have a farming operation?

101(18) “family farmer” means an individual and spouse engaged in farming operations whose aggregate debts do not exceed $3,544,525 and not less than 50% of whose aggregate noncontingent debts arise out of farm operations, for:

(i) the taxable year preceding; or

(ii) each of the 2nd and 3rd taxable year preceding the taxable year in which the case was filed.

101(19) “family farmer with regular annual income” means family farmer whose annual income is sufficiently stable and regular to enable such family farmer to make payments under a plan or reorganization under Chapter 12 of this title.

101(20) “farmer” is a person who received 80% of such person’s gross income during the tax year immediately preceding the year the case was filed from farming operations owned by the debtor.

Questions: What if debts exceed $3,544,525 and no one objects to eligibility?

What does “gross income” mean?     

Information needed by Debtor’s attorney:

  1. Tax returns
  2. Farm plan proposals
  3. notes, security instruments
  4. lease agreements
  5. purchase contracts
  6. ASCS statements
  7. legal descriptions, homestead designations
  8. equipment list
  9. appraisals (land and equipment); if you don’t have them, arrange to get them.
What information does the Trustee want? - Now and at the Sec. 341 hearing: 

Most Chapter 12 Trustees require the attorney to prepare a summary of operations, which describes the debtor’s past and projected farm operations.

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