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Home Bankruptcy Chapter 9 and Chapter 12

Chapter 9 and Chapter 12

Published on December 27, 2012 by TFrahm in Bankruptcy

Our last article dealt with Chapter 7, 11, and 13 bankruptcies. Here is a look at two other types of bankruptcy, Chapter 9 and Chapter 12.

Chapter 9 Bankruptcy.

Chapter 9 bankruptcy is reserved for municipalities. The Bankruptcy Code defines a municipality as a “political subdivision or public agency or instrumentality of the State.” This is a very broad definition, and can include a wide variety of governmental entities.

Municipalities must meet four other requirements to file for Chapter 9. First, it must be specifically authorized to file for Chapter 9 under “state law.” Second, it must be “insolvent.” Third, it must have a desire to adjust to its debts. Fourth, it must obtain an agreement of the majority of certain types of creditors, or if there is no agreement, evidence that an attempt to negotiated had to be made.

Now, prior to the filing of the Chapter 9 petition, some states require municipalities to engage in pre-bankruptcy activities, such as attempting to negotiate with creditors. Once those requirements are met, the filing may be done. The municipality must prepare and file all of the necessary bankruptcy paperwork with the clerk of the bankruptcy court and the bankruptcy petition may be objected to if engagement in negotiations weren’t met as required.

This type of bankruptcy can often be one of the most complex and rare bankruptcy chapters. Not only are these cases complex due to their size and parties involved, but the law treats Chapter 9 cases differently. This difference in treatment is the result of the limited power of the federal government to control and/or give bankruptcy relief to governmental units of the states. In addition, very few bankruptcy lawyers are involved in Chapter 9 cases.

Chapter 12 Bankruptcy

Chapter 12 is mainly aimed at a family farmer or fisherman, and it is designed to be filed by consumers rather than companies. To qualify, more than 50% of your income must be derived from a farming or fishing enterprise. Now, the courts have given a wide latitude to what constitutes a farming or fishing industry so check with me for more clarification.

A chapter 12 bankruptcy is similar to chapter 13 as they allow you to reorganize your debts. The important advantages to a chapter 12 bankruptcy compared to a chapter 13 include the following:

  1. The debtor doesn’t have to undergo the ‘means test’ to do a chapter 12.
  2. The limitation on the amount of debt you are allowed is much greater in chapter 13.
  3. You can actually modify the amount you pay back on the first mortgage of your home. The law prevents you from doing this in chapter 13, but if your home is underwater, you can change the terms.

 

 

 
 
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