Once the petition is filed, an automatic stay protects the farmer from any collection efforts by creditors, including those pending in state courts. Under certain circumstances, a creditor may petition the Bankruptcy Court to be permitted to proceed with collection efforts, despite the stay. After a petition is filed under Chapter 12, the farmer has 90 days to file a reorganization plan. The reorganization plan must include a list of all debts and indicate how the debts will be repaid over a three to five year period. If the bankruptcy court approves the plan after a hearing, the farmer can continue operating the farm.
Creditors have a limited right to file objections to the Reorganization Plan.
They can request removal of the farmer from the farm only if the farmer is guilty of fraud, dishonesty, incompetence or gross mismanagement. A court-appointed trustee supervises the implementation of the plan. The farmer makes periodic payments to the trustee, who distributes the payments to the creditors according to the plan. Payment Chapter 12 specifies which creditors must be paid in full, and which creditors must be paid out of disposable income over the three to five year period of the plan. If the plan is successfully completed, the farmer is discharged and unsecured debts included in the plan, but not paid in full, are discharged.