Chapter 12 FAQs

Chapter 12 FAQs

We put together a resource that covers a few frequently asked questions about what Chapter 12 Bankruptcy is and the process it entails. Our bankruptcy attorneys in Portland have years of experience and have been advocating for clients for the best outcome. To ensure that your Chapter 12 bankruptcy case is properly processed consult with one of our skilled bankruptcy attorneys at Vanden Bos & Chapman, LLP today.

Reach out to the Chapter 12 bankruptcy attorneys at Vanden Bos & Chapman, LLP by calling (503) 664-3134 or contact us online. We offer same day appointments! 

What is Chapter 12 Bankruptcy?

Chapter 12 is a Reorganization Chapter in the Bankruptcy Code for family farmers and fishermen. Congress has expressly stated that the public interest is best served by giving financially distressed individuals and companies engaged in family farming or fishing operations a chance to reorganize their financial affairs under the supervision of the bankruptcy court.

Is there a Trustee in Chapter 12?

Yes. In Oregon, there is a standing Chapter 12 Trustee who is automatically appointed the Trustee in all Chapter 12 bankruptcy cases. The Chapter 12 Trustee has 2 primary functions in Chapter 12.

First, the Chapter 12 Trustee monitors the case and the plan for compliance with the Bankruptcy Code. Second, the Chapter 12 Trustee also collects the debtor’s plan payments and in turn uses the debtor’s funds to make the payments to the debtor’s creditors called for under the bankruptcy plan.

The debtor generally remains in possession and control of the farming or fishing operations.

What are the Requirements for Filing Chapter 12 Bankruptcy?

Only a family farmer or family fisherman with regular annual income may be a debtor under Chapter 12 of this title. The term 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 under Chapter 12 of this title.

Why do individuals or companies choose to file Chapter 12?

The most common reason individuals or companies file Chapter 12 is to protect their ongoing operations from disruption or collapse due to threatened or actual creditor debt collection activity, such as:

  • Foreclosure
  • Garnishments
  • Lawsuits
  • And repossession of assets

The threat of foreclosure or repossession often can mean the loss of significant equity in property owned by the debtor, or the loss of valuable assets.


How do I know if my company, or I, are good candidates for Chapter 12?

An individual or a company is a good candidate for Chapter 12 if there is a viable core business that can be preserved if given some breathing space from creditor collection activity. Any debtor who has assets with significant equity that will be lost to repossession or foreclosure is also a prime candidate for protection under Chapter 12.

How is Chapter 12 started?

Chapter 12 is initiated by the filing of a Chapter 12 Bankruptcy Petition, which is effective immediately upon filing to create an automatic stay of all collection activity against the debtor.

What should be done to prepare for filing a Chapter 12?

The first step that should be taken by any person or company considering filing for Chapter 12 is to locate and retain an experienced Chapter 12 attorney.

The attorney will want to review all the available financial information about the potential Chapter 12 debtor for at least the prior 3 years, so a Chapter 12 debtor should make every effort to bring all of his or her accounting and financial reports up to date for the first meeting with the lawyer, if possible.

What pre-filing actions should not be taken before filing Chapter 12?

Generally, it is a good idea not to do anything out of the ordinary course of business prior to filing Chapter 12.

No expenditures should be made except those that are approved by the bankruptcy attorney in advance, which will usually be limited to those expenses that are absolutely essential to keeping the business operating. Payments to creditors on past due debts is typically not a good idea and usually not necessary to keep the business operating.

Can the debtor issue payroll checks on its regular paydays in Chapter 12?

Ordinarily, yes, but before payroll can be issued, it may be necessary to file a motion with the bankruptcy court to obtain approval to use any funds that are subject to a security interest of a lender.

Such motions are known as motions to use cash collateral and are described below. If a lender has a blanket security interest in all the assets of the debtor, then the debtor is prohibited from spending any of this cash collateral upon filing the Chapter 12 petition until the court has entered an order authorizing the use of cash collateral.

What is cash collateral?

Cash collateral is a liquid asset that is subject to a lien or security interest of a creditor.

Cash collateral may include cash on deposit or on hand, accounts receivable, rent payments from tenants, insurance policy proceeds, inventory held for sale, or the proceeds arising from the sale of any asset, including real estate, if subject to the lien of a creditor.

Can the debtor use cash collateral without court approval?

The debtor cannot use cash collateral in a Chapter 12 without the consent of the creditor who has a lien on the cash collateral. Although a court order is not necessary if the creditor consents, as a practical matter, creditors virtually never consent to the use of cash collateral without the entry of a court order authoring the use of cash collateral.

The order authorizing the use of cash collateral will contain certain provisions protecting the creditor’s position in connection with the use of cash collateral, the most important of which is the granting of a replacement lien in the after-acquired property and future cash collateral.

What is a Chapter 12 Plan?

The plan of reorganization in Chapter 12 is presented in a short three-page form and specifies how the debtor will deal with or otherwise pay its creditors. The lawyer typically fills in the required information in the plan on behalf of the debtor, but each Chapter 12 debtor must sign the plan when it is completed and filed.

How long does a Chapter 12 debtor have to prepare and file a plan of reorganization?

Unless changed by the court for cause, the debtor must file its Chapter 12 bankruptcy plan within 90 days following the date the bankruptcy petition was filed.

Is there a disclosure statement in Chapter 12?


Is there a creditors’ committee in a Chapter 12 case?


Do creditors get to vote for or against a Chapter 12 plan?

No. There is no voting in Chapter 12 like there is in Chapter 11 bankruptcy. The bankruptcy judge decides if your plan complies with the Bankruptcy Code and if so, can confirm the plan over the objections of creditors.

Can the court force a secured creditor to reduce its interest rates or change the loan payments or due dates in a Chapter 12 plan?

Yes. The court can, under certain circumstances, reduce the interest rates on loans to market rates of interest in the plan.

The court can also approve a plan that extends the maturity dates of loans or changes the monthly payments or amortization schedules. The court can make these changes over the affected creditor’s objections, under certain circumstances.

What is the best interest of the creditor’s number and why is it important in Chapter 12?

The best interest of the creditor’s number is the hypothetical amount that the unsecured creditors would receive if the debtor’s case were converted to Chapter 7 and the unsecured class was paid the amount available after the debtor’s assets were liquidated by a Chapter 7 Trustee.

In order to confirm a Chapter 12 plan, the court must find that the unsecured creditors will be paid at least as much as the best interest of the creditor’s number under the terms of the plan. If not, the court will deny confirmation of the plan.What does the term "cram down" mean in Chapter 12?

"Cram down" is a well-known term in the Chapter 12 bankruptcy process, although the term does not appear anywhere in the Bankruptcy Code or Rules.

"Cram down" simply means the process by which the bankruptcy court can, as part of the confirmation of a Chapter 12 Bankruptcy Plan, force treatment upon an objecting creditor, provided the Plan otherwise meets all of the other confirmation criteria under Section 1225 of the Bankruptcy Code.

How are disputed claims resolved in Chapter 12?

The debtor has the right to file written objections to the creditor’s claims in Chapter 12. If the objection is not resolved by agreement between the objecting party and the creditor, the court will conduct a hearing to evaluate the merits of the objection.

The court will fix the amount of the claim for purposes of the Chapter 12 case. Once a claim is not subject to dispute, it is referred to as an allowed claim.

Can the bankruptcy court force my lender to make new loan advances to me so my company can pay its bills?

No. A court cannot force anyone to loan new money to a debtor under any chapter of the Bankruptcy Code. However, the court can force a creditor to allow a debtor to use existing assets or existing cash on hand that would otherwise be subject to the creditor’s security interest.

For example, the court could allow a debtor to use the proceeds from the sale of crops subject to a lender’s security interest to pay expenses of the farming operation rather than remit the money to the secured creditor. Granting such a request would fall under the court’s authority to permit a debtor to use the cash collateral of a lender, even over the lender’s objection.

All cases are different and a persuasive case has to be made to the court in such a circumstance so no debtor should assume he or she will have the automatic right to use cash collateral. The right to use cash collateral should be discussed early on with competent Chapter 12 counsel.

What does Chapter 12 cost?

As of January 1, 2018, the filing fee for Chapter 12 is $275. Individual Chapter 12 debtors must also first complete a consumer credit counseling session to become eligible to file a Chapter 12 case. The actual cost of Chapter 12 will vary from case to case. Usually, most of the cost of Chapter 12 can be paid through the Chapter 12 plan over the life of the plan.

The only way to get a rough idea of how much a Chapter 12 case might cost in your own situation is to meet with experienced counsel, review all of the facts and circumstances, and ask for an estimate of the fees. At Vanden Bos and Chapman, LLP, our lead partner will meet with qualified Chapter 12 candidates at no cost for an initial evaluation of the suitability of Chapter 12 and discuss the costs of the case with you.

What is a motion for relief from the automatic stay?

A motion for relief from stay is a motion usually filed by a creditor, to lift (eliminate) the stay of actions against the debtor or the debtor’s property, so that the creditor can proceed to enforce the creditor’s rights against the property as if there were no bankruptcy.

The most common motion for relief from the automatic stay is for permission to continue with a foreclosure against the debtor’s real estate or personal property, thereby removing the asset from the bankruptcy estate. In a farming or fishing case under Chapter 12, if the debtor loses a motion for relief from stay, the chances of proposing and confirming a Chapter 12 plan are seriously diminished.

What is meant by the term "equity cushion"?

"Equity cushion" refers to the value of an asset above the amount of the secured debt on the asset. For example, a parcel of real estate worth $1,000,000 subject to a mortgage of $800,000 would have an equity cushion of $200,000.

What happens at the confirmation hearing?

If creditors or committees have objected to confirmation of the plan, the court will conduct a trial of the issues to determine if the plan can be confirmed even over the objections. If the court finds the plan meets all of the confirmation requirements, it will enter an order confirming the plan.

The court may also indicate it will deny confirmation of the plan as written, but allow the debtor a chance to file an amended plan to amend or eliminate the offending plan provisions, then confirm the amended plan, either with or without an additional hearing.

You do not have to lose the family farm or fishing business. For help with your Chapter 12 bankruptcy case, contact Vanden Bos & Chapman, LLP at (503) 664-3134 today.

Our Clients Are Our Biggest Endorsers

  • Your compassion and understanding have really made swallowing our fate a bit easier.

    “Ann: I know this is your business, but I can’t tell you what your guidance has meant to Pat and me through this bankruptcy process. Your compassion and understanding have really made swallowing our fate a bit easier. So, thank you. You have a thankless job at times but know we are so appreciative!”

  • Thanks again to Ann Chapman and the team there for their grace and their professionalism.

    “Ann: Thanks again to Ann Chapman and the team there for their grace and their professionalism, courtesy, and excellent work at every turn.”

  • Your caring and listening ear really helped me through this.

    “Ann: I wanted to send you a note and thank you for the support and help you have given to me over the past five years. Your caring and listening ear really helped me through this. I appreciate it so much. Going through bankruptcy was a learning experience for me. I know once I can find employment somewhere I will be OK with my spending. I am not perfect, but I am so much better.”

  • I think you are the best expert!

    “Ann: I have to thank you again for all of your hard work, knowledge, time, and help you have provided me (getting through all this)! I truly appreciate what you have done. I think you are the best expert! I couldn’t have found anyone better.”

  • Thanks!

    “Ann and her staff’s top-notch professionalism with an unexpected but very appreciated warm personal touch during a rough patch in our lives AND an experience that was based on a workable plan that now has become our daily habit as we close this chapter and move on into a brighter future. A triple-combination that delivers success! Thanks!”

Choose the Right Bankruptcy Attorney for Your Case

  • We provide individualized, thorough representation clients deserve.
  • We are well-versed in all bankruptcy matters, from consumer to business affairs.
  • We have some of the most recognized and awarded bankruptcy lawyers in the state.
  • We offer same-day appointments to our clients.
  • We've been advocating for clients since 1981.

At Our Firm, the Attorneys Pick Up the Phone

Connect with our legal team today. Provide us with insight about your case to get started today.
  • Please enter your first name.
  • Please enter your last name.
  • Please enter your phone number.
    This isn't a valid phone number.
  • Please enter your email address.
    This isn't a valid email address.
  • Please make a selection.
  • Please enter a message.