Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
A farmer’s motion to pay secured creditors from proceeds of sold farm equipment was denied because the direct payments weren’t part of his bankruptcy plan and there was no proof of claim filed for the creditor ( In re Heft , 2017 BL 48396, Bankr. C.D. Ill., Case No. 16-70536 Chapter 12, 2/16/17 ).
The decision by Judge Mary P. Gorman of the U.S. Bankruptcy Court for the Central District of Illinois serves as a reminder to both Chapter 12 and Chapter 13 debtors that plans control payments. Debtors also need to be sure that secured creditors’ claims are represented by a proof of claim, a document filed with the court stating the amount owed by a debtor to the creditor.
Paul B. Heft decided to retire from farming, and apparently as a means to wind up his business, he filed a Chapter 12 bankruptcy case on March 31, 2016. Chapter 12 is the section of the Bankruptcy Code available to family farmers and fishermen.
Heft believed he had two creditors secured by farming equipment. His plan for treating creditors’ claims in the bankruptcy case was to sell the equipment at auction and pay the secured creditors with the proceeds. What was left over would fund the plan payments to his other creditors.
Despite several warnings or admonitions from the court, Heft’s plan—and subsequent amendments to the plan—failed to contain any details regarding the debtor’s obligations to pay the secured claims. There was no statement of the amount due or interest rate to be paid.
The Bank of Chestnut failed to file a proof of claim “or take any action on its behalf,” the court said, and the debtor didn’t file one on the creditor’s behalf, as the Bankruptcy Rules allow him to do.
Instead, the debtor filed a motion for permission to pay his secured creditors directly—in other words, outside the provisions of the plan, by and through the offices of the Chapter 12 trustee appointed to administer the debtor’s bankruptcy estate according to a court-approved plan.
The court said that the plan can’t provide for payments to the secured creditor without an allowed proof of claim.
The debtor failed to provide any authority which would allow paying the creditor outside of the plan. It denied the motion and set the amended plan for a hearing on whether it should be approved.
The court wasn’t swayed by the debtor’s suggestion that it might have to dismiss its bankruptcy case and start again. If the debtor decides to dismiss, “so be it,” the court said.
Heft was represented by Andrew S. Erickson, Richardson & Erickson, Decatur, Ill. Michael D. Clark, Peoria, Ill. was the Chapter 12 trustee.
To contact the reporter on this story: Daniel Gill in Washington at email@example.com
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
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