Chapter 12 Bankruptcy: As a creditor, is there any way to get the action dismissed?

Chapter 12 bankruptcy is a powerful tool that provides family farmers a way to reduce and/or restructure their existing debt.  This tool will often times be at the expense of the creditor.  While most sections of the bankruptcy code lie in favor of the debtor, there are certain provisions that a creditor must look to in order to determine whether a debtor may proceed with Chapter 12 bankruptcy protection. In order to qualify as a family farmer under Chapter 12, the aggregate debts of the farmer cannot exceed $4,031,575, at least fifty percent (50%) of the debt must come from the farming operation, and the farmer must have more than fifty percent (50%) of the gross income come from the farming operation.  Thus, one of the first steps the creditor should do is determine whether the debtor has accurately disclosed all of the debts, determine whether the debts arise from the farming operation, and determine whether the debtor meets the gross income test.

The creditor can also seek dismissal of the bankruptcy action for cause.  After notice and hearing, the bankruptcy court may dismiss a case for the following: unreasonable delay or gross mismanagement that is prejudicial to the creditors; nonpayment of required fees; failure to timely file a plan; failure to timely make payments required by a confirmed plan; denial of confirmation of a plan; material default of the confirmed plan; revocation or termination of a confirmed plan; continuing loss or diminution of the value of the estate without a reasonable likelihood of rehabilitation; and failure of the debtor to pay any domestic support obligation that becomes payable after the date of the filing of the bankruptcy petition.  A creditor may also seek to have the action dismissed or converted to a case under Chapter 7 if it can be shown that the debtor committed fraud in connection with the case. Although it is an uphill battle when dealing with a debtor who has filed for Chapter 12 bankruptcy protection, there is some hope for a creditor.

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.