VII. THE PLAN OF REORGANIZATION
Similar to a Chapter 13 case, only the debtor in a Chapter 12 case may file a plan of reorganization. The debtor's plan must be filed not later than 90 days after the entry of the order for relief, but the court may extend the period for filing the plan if an extension is substantially justified. See 11 U.S.C. § 1221. There are no clear guidelines for determining substantial justification; however, debtors should approach Chapter 12 with the expectation that such an extension of time will not be granted. The 90-day time limit is one of the provisions of Chapter 12 that protects a creditor's interest, and it is likely that the threshold for substantial justification will be high. Failure to file a plan in a timely manner under Section 1221 is grounds for dismissal of the debtor's case. See 11 U.S.C. § 1208(c)(3). No disclosure statement is required in cases under Chapter 12.
A. Provisions of the Plan
The plan may provide for payments at least over a period of three years or, if the court approves for cause, a longer period of up to five years. 11 U.S.C. § 1222(c). Pursuant to Section 1222(a), a Chapter 12 debtor's plan must:
(1) Provide for the submission of all of the debtor's future earnings or future income to the supervision and control of the trustee, or such portion as is necessary to execute the debtor's plan;
(2) Provide for full payment, in deferred cash payments (inclusion of interest is not required), of all priority claims under Section 507, unless a holder of a priority claim agrees to different treatment; provided, however,
(3) A claim under a domestic support order entitled to priority may not be required to be paid in full if all of the debtor's net disposable income is paid into the plan for a period of five years;
(4) Provide for the same treatment of each claim or interest within a class if the debtor's plan classifies claims and/or interests unless the holder of a particular claim or interest agrees to less favorable treatment; and
(5) Provide for the treatment of capital gains taxes as general unsecured claims under Section 1232.
11 U.S.C. § 1222(a)(1), (2), (3), (4) and (5).
These provisions of Section 1222(a) are mandatory minimum requirements of a confirmable Chapter 12 plan. Section 1222(a)(1) simply requires that the debtor submit sufficient funds to perform as required under the plan. As noted above and pursuant to Section 1222(a)(2), in order to be confirmed, a Chapter 12 plan must provide for Section 507 priority claims to be paid in full (unless otherwise agreed by the claimholder or for a domestic support order under the five year net disposable income payment exception (subsection (a)(4)), but the claims may be paid in deferred cash payments, not including interest, over the life of the plan, which is from three to five years.
Additionally, the Chapter 12 plan may designate a class or classes of unsecured claims. Although the plan may not discriminate unfairly against any designated class, it may treat claims for consumer debts on which a co-debtor is liable with the debtor differently from other unsecured claims. 11 U.S.C. § 1222(b)(1).
Section 1222(a)(5) is discussed infra in Section V dealing with the sale of assets in Chapter 12.
Pursuant to Section 1222(b)(2), the debtor's plan may modify the rights of holders of either secured claims or unsecured claims or may leave such rights unaffected. Notably, unlike Section 1322(b)(2), which applies to Chapter 13 cases, Section 1222(b)(2) does not prohibit the modification of a claim secured only by a lien on the debtor's principal residence; therefore, a Chapter 12 debtor may modify the rights of a secured creditor holding a claim secured only by a lien on the debtor's residence. This modification may prove of significant benefit to Chapter 12 debtors because often one of the primary objectives of a typical farmer is to retain the family home.
Provisions in a Chapter 12 plan for the curing of default are generous to the debtor. Pursuant to Section 1222(b)(3), the plan may provide for the curing or the waiving of any default, and payments on any unsecured claim may be made concurrently with payments on any secured or other unsecured claim. Additionally, the plan may provide for the curing of default within a reasonable period of time and maintenance of payments while the debtor's case is pending. Thus, a Chapter 12 debtor may decelerate a defaulted debt by curing the arrearage over a reasonable time and by maintaining any regular payments while the case is pending (unless the debt matured pre-petition or will mature during the life of the plan by its own terms). Cases decided under Chapter 13 concerning the curing of default may be applicable to Chapter 12 cases. A cure pursuant to Section 1222(b) should put the debtor in the same position as if the default never occurred.
B. Treatment of Post-Petition Crops or Crop Proceeds
Section 1222(a)(1) requires the plan to provide for the submission of future income to the supervision and control of the Chapter 12 trustee as necessary for the...
