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socrateaser, Attorney
Category: Bankruptcy Law
Satisfied Customers: 38898
Experience:  Attorney and Real Estate Broker -- Retired (mostly)
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I am a farmer that is considering filing Chapter 12 bankruptcy,

Customer Question

I am a farmer that is considering filing Chapter 12 bankruptcy, however I have been told that prior to filing I would need to find a financial institution to provide a operating loan for me. Otherwise the Chapter 12 filing would be denied in court. Is this true or could you please provide any additional information on the issue.
Submitted: 6 years ago.
Category: Bankruptcy Law
Expert:  socrateaser replied 6 years ago.

There is no legal requirement for an operating loan. However, because a Chapter 12 plan must be able to pay in full all of the allowed priority claims over a period of three years, unless extended by the court (see Bankr. Code 507), an operating loan may be required to demonstrate the required cash flow necessary to satisfy the plan requirements.


Note: I don't claim to be an expert re Chapter 12 actions, and certainly not in Arizona. So, few Chapter 12 actions are filed, that I don't know if anyone is an expert. However, there is no Bankruptcy Code, local AZ bankruptcy court rule or general order requiring an operating loan. The sole legal issue is whether a plan can be constructed to devote all of the debtor's income to payment of the bankruptcy plan, plus full payment of the priority claims over the plan's duration.


Hope this helps.


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Edited by socrateaser on 8/4/2010 at 1:23 AM EST

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