California Business Bankruptcy Lawyer & Attorney : Klein DeNatale Law Firm : Bakersfield, Kern County, Central California

According to data released by the Administrative Office of the U.S. Courts, and discussed in the Los Angeles Times, nearly one million bankruptcy cases were filed between July 1, 2007, and June 30, 2008--a total of 967,831 cases.  That represents a 28.9% increase over the preceding 12 month period.  And, as discussed on  the ABI web site, based on that same data, bankruptcy filings have increased 29.2% in the first half of 2008 relative to the same time period in 2007.

Leading the way in bankruptcy filings is the Ninth Circuit, in particular California.  Filings in the Ninth Circuit increased by a staggering 60.9%.  This is, of course, no surprise given the catastrophic impact that the real estate downturn has had on the California economy over the last year and a half.

Nationally, Chapter 7 filings increased by 36.7%, Chapter 13 grew by 16.9%, Chapter 11 increased by 30.6%, and Chapter 12 filings actually decreased by 18.7% when compared to the prior 12 months.

As steep as the increases appear, the total number of filings still has a long way to go to match the total amount of filings of even two years ago, as revealed by the Administrative Office's data.  For example, take a look at this spread sheet.  In the period July 1, 2005 through June 30, 2006, the total number of filings was nearly 1.5 million.  Data shows that the years prior to 2006 had similar amounts of cases initiated. 

Therefore, although the new data indicates a steep incline, the aggregate filings are still below historical levels.

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Welcome back and Happy New Year!  After a short break it is nice to be back at the keyboard.  This is the fourth and final installment in the Chapter 12 Tutorial:  the discharge.

After completing all payments under the chapter 12 plan, the debtor will receive a discharge as long as the debtor certifies that all domestic support obligations, if any, have been paid.  What is a discharge?  The discharge is the whole point.  The discharge has the effect of freeing the debtor, with limited exceptions, from all debts provided for by the plan, allowed under section 503, or disallowed under section 502.  Your creditors who were provided for under the plan, whether in full or in part, may no longer seek repayment from you regarding the discharged debts.  The slate is wiped clean.

Certain categories of debts are not discharged in chapter 12 proceedings.  11 U.S.C. § 1228(a). Those categories include:

• 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 under a separate agreement and, accordingly, are not discharged.

But what if you cannot make your plan payments, can you still get a discharge?  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.

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A Chapter 12 debtor must file a repayment plan no later than 90 days after the petition date unless the court grants an extension due to circumstances "for which the debtor should not justly be held accountable." 11 U.S.C. § 1221.  The plan provides for payments of fixed amounts to the trustee on a regular basis and must be approved by the Court.  The trustee then distributes the funds to creditors according to the terms of the plan, which typically pays creditors some amount less than 100 cents on the dollar.

There are three types of claims that must be provided for in the plan:

• Creditors holding priority claims are granted special status by the bankruptcy law, such as claims for back taxes, domestice support obligations, such as child support, and the costs of the bankruptcy proceeding, including the fees of the attorneys and the trustee.  11 U.S.C. § 507;
• Secured claims are those for which the creditor has the right to liquidate certain property if the debtor does not pay the underlying debt, such as loans given secured by real property or equipment; and
• 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 provides for a three or, if the Court allows, five year repayment period.  The plan must provide for full payment of all priority claims except for three exceptions:

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A bankruptcy case under chapter 12 begins with the filing of a petition in the bankruptcy court (1) with jurisdiction over the area where the individual lives or (2) in the jurisdiction where the corporation or partnership debtor has its principal place of business or principal assets.  Unless the court orders otherwise, the debtor must also file:

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); In the Eastern District of California also see Local Rule 1007-1.  A married couple may file jointly or as individuals.  11 U.S.C. § 302(a).  (The Official Forms may be downloaded here.  They are not available from the court.)

Under current law, and in the Eastern District of California, the courts must charge a $200.00 case filing fee and a $39.00 miscellaneous administrative fee for the filing of a Chapter 12 petition.  Normally these fees are paid to the clerk of the court when the petition is filed, but, with the court’s permission, they may be paid in installments. 28 U.S.C. § 1930(a); Fed. R. Bankr. P. 1006(b).  The number of payment is limited to four and the debtor must make the final installment within 120 days of filing.  Fed. R. Bankr. P. 1006(b).  The court may extend the time of any installment for cause, which can extend the due date an additional 60 days for a total of 180 days.  Id.  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. § 1208(c)(2).

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Today is Part I in a four part series of posts discussing the basics of family farmer or family fisherman bankruptcy under Chapter 12 of the bankrutpcy code.  Today I provide some background on Chapter 12.

Chapter 12 is designed for “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 repayment plan to make installments to creditors over three to five years.  Generally, 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 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. § 1222(b)-(c).

In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman,

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