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Debate This: Personal Bankruptcy
Chapter 26 p. 631
Three months ago, Janet Hart’s husband of twenty years died of cancer. Although he had medical insurance, he left Janet with outstanding medical bills of more than $50,000. Janet has worked at the local library for the past ten years, earning $1,500 per month. Since her husband’s death, Janet also has received $1,500 in Social Security benefits and $1,100 in life insurance proceeds every month, giving her a monthly income of $4,100. After she pays the mortgage payment of $1,500 and the amounts due on other debts each month, Janet barely has enough left over to buy groceries for her family (she has two teenage daughters at home). She decides to file for Chapter 7 bankruptcy, hoping for a fresh start. Using the information provided in the chapter, answer the following questions.
How much time does Janet have after filing the bankruptcy petition to submit the required sched-ules? What happens if Janet does not meet the deadline?
Assume that Janet files a petition under Chapter 7. Further assume that the median family income in the state in which Janet lives is $49,300. What steps would a court take to determine whether Janet’s petition is presumed to be substantial abuse under the means test?
Suppose the court determines that no presumption of substantial abuse applies in Janet’s case. Nevertheless, the court finds that Janet does have the ability to pay at least a portion of the medical bills out of her disposable income. What would the court likely order in that situation?
Debate This:Rather than being allowed to file Chapter 7 bankruptcy petitions, individuals and couples should always be forced to make an effort to pay off their debts through Chapter 13.
Respond to others’ comments or questions; challenging others’ postings; and helping others understand a concept through experiences, examples, and explanations. Contribute value to the learning.
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Chapter 26: Bankruptcy: 26-4b Family Farmers and Fishermen—Chapter 12
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
26-4b Family Farmers and Fishermen—Chapter 12
To help relieve economic pressure on small farmers, Congress created Chapter 12 of the
Bankruptcy Code. In 2005, Congress extended this protection to family fishermen, modified
its provisions somewhat, and made it a permanent chapter in the Bankruptcy Code
(previously, it had to be periodically renewed by Congress).
For purposes of Chapter 12, a family farmer is one whose gross income is at least 50
percent farm dependent and whose debts are at least 50 percent farm related. The total
debt must not exceed $4,153,150. A partnership or a close corporation that is at least 50
percent owned by the farm family can also qualify as a family farmer.
A family fisherman is one whose gross income is at least 50 percent dependent on
commercial fishing operations and whose debts are at least 80 percent related to
commercial fishing. The total debt for a family fisherman must not exceed $1,924,550. As
with family farmers, a partnership or close corporation can also qualify.
Under Chapter 12, what is the definition of a “family fisherman”?
John Wollwerth/ Shutterstock.com
Filing the Petition
The procedure for filing a family-farmer or family-fisherman bankruptcy plan is similar to the
procedure for filing a repayment plan under Chapter 13. The debtor must file a plan not later
than ninety days after the order for relief has been entered. The filing of the petition acts as
an automatic stay against creditors’ and co-obligors’ actions against the estate.
A farmer or fisherman who has already filed a reorganization or repayment plan may
convert the plan to a Chapter 12 plan. The debtor may also convert a Chapter 12 plan to a
liquidation plan.
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Content and Confirmation of the Plan
The content of a plan under Chapter 12 is basically the same as that of a Chapter 13
repayment plan. Generally, the plan must be confirmed or denied within forty-five days of
filing. The plan must provide for payment of secured debts at the value of the collateral. If
the secured debt exceeds the value of the collateral, the remaining debt is unsecured.
For unsecured debtors, the plan must be confirmed if either (1) the value of the property to
be distributed under the plan equals the amount of the claim or (2) the plan provides that all
of the debtor’s disposable income to be received in a three-year period (or longer, by court
approval) will be applied to making payments. Completion of payments under the plan
discharges all debts provided for by the plan.
Chapter 26: Bankruptcy: 26-4b Family Farmers and Fishermen—Chapter 12
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
© 2022 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
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Chapter 26: Bankruptcy Chapter Summary: Bankruptcy
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
Chapter Review
Chapter Summary: Bankruptcy
The
Bankruptcy
Code
1. Goals of bankruptcy law—The law attempts to balance the rights
of the debtor and the creditors by giving the debtor a fresh start
and ensuring equitable treatment of creditors.
2. Bankruptcy courts—Bankruptcy proceedings are held in federal
bankruptcy courts (under the authority of U.S. district courts). They
follow the Federal Rules of Bankruptcy Procedure. Bankruptcy
court judges are appointed for fourteen-year terms.
3. Types of bankruptcy relief—Chapter 7 provides for liquidation
proceedings, Chapter 11 governs reorganizations, and Chapter 13
(for individuals) and Chapter 12 (for family farmers and family
fishermen) provide for adjustment of debts of parties with regular
income.
4. Special treatment of consumer-debtors—The Bankruptcy Code
requires that all consumer-debtors receive written notice of the
purpose, benefits, and costs of each chapter of bankruptcy, as well
as information on the types of services available from credit
counseling agencies.
BANKRUPTCY—A COMPARISON OF CHAPTERS 7, 11, 12, AND 13
Issue
Chapter 7
Chapter 11
Chapters 12 and 13
Who Can
Debtor (voluntary) or
Debtor (voluntary) or
Debtor (voluntary)
creditors
creditors
only.
(involuntary).
(involuntary).
Any “person”
Any debtor eligible
Chapter 12—Any
(including
for Chapter 7 relief;
family farmer (one
partnerships and
railroads are also
whose gross income
corporations) except
eligible.
is at least 50 percent
Petition
Who Can Be
a Debtor
railroads, insurance
farm dependent and
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companies, banks,
whose debts are at
savings and loan
least 50 percent farm
institutions,
related) or family
investment
fisherman (one
companies licensed
whose gross income
by the U.S. Small
is at least 50 percent
Business
dependent on and
Administration, and
whose debts are at
credit unions.
least 80 percent
Farmers and
related to
charitable institutions
commercial fishing)
cannot be
or any partnership or
involuntarily
close corporation at
petitioned.
least 50 percent
owned by a family
farmer or fisherman,
when total debt does
not exceed a
specified amount
($4,153,150 for
farmers and
$1,924,550 for
fishermen).
Chapter 13—Any
individual (not
partnerships or
corporations) with
regular income who
owes fixed
(liquidated)
unsecured debts of
less than $394,175
or fixed secured
debts of less than
$1,184,200.
Procedure
Leading to
Discharge
Nonexempt property
Plan is submitted. If it
Plan is submitted
is sold with proceeds
is approved and
and must be
to be distributed (in
followed, debts are
approved if the value
order) to priority
discharged.
of the property to be
groups.
distributed equals the
Dischargeable debts
amount of the claims
are terminated.
or if the debtor turns
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over disposable
income for a threeyear or five-year
period. If the plan is
followed, debts are
discharged.
Advantages
On liquidation and
Debtor continues in
Debtor continues in
distribution, most
business. Creditors
business or
debts are discharged,
can either accept the
possession of
and the debtor has
plan, or it can be
assets. If the plan is
an opportunity for a
“crammed down” on
approved, most
fresh start.
them. The plan
debts are discharged
allows for the
after the specified
reorganization and
period.
liquidation of debts
over the plan period.
Chapter 26: Bankruptcy Chapter Summary: Bankruptcy
Book Title: Business Law Today, Comprehensive Edition Text & Cases
Printed By: Teresa Halley (thall047@fiu.edu)
© 2020 Cengage Learning, Cengage Learning
© 2022 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means graphic, electronic, or mechanical, or in any other manner – without the written permission of the copyright holder.
https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=59450322196010319965956830937&eISBN=9780357038000&id=1402204117&nbId=2786685&…
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