Over the years, Congress has created four different reorganization regimes for individuals in bankruptcy. Those regimes are:
- Chapter 13 for consumers;
- Chapter 12 for farmers;
- Standard Chapter 11 for larger business entrepreneurs; and
- Subchapter V for smaller business entrepreneurs.
Each of these four regimes has a length of plan requirement for confirmation of an individual debtor’s plan. And such requirement for each of those regimes is similar but different.
What follows is a comparison of those statutory requirements.
Differing Statutory Standards
–Chapter 12: 3 years presumed
The farmer rule, in § 1222(c), says (emphasis added):
“Except as provided in subsections (b)(5) and (b)(9), the plan may not provide for payments over a period that is longer than three years unless the court for cause approves a longer period, but the court may not approve a period that is longer than five years.”
This statute presumes that a Chapter 12 plan will last for three years, but that time can be extended up to five years upon a showing of cause.
–Subchapter V: an ambiguous standard
The Subchapter V rule, in § 1191(c)(2)(A), says (emphasis added):
“the plan provides that all of the projected disposable income of the debtor to be received in the 3-year period, or such longer period not to exceed 5 years as the court may fix . . .”
This statute provides no guidance on how a court might go about “fixing” the length of the plan’s term.
–Standard Chapter 11: minimum 5 years required
The large business rule for individuals only, in § 1129(a)(15)(B), says (emphasis added):
“the value of the property to be distributed under the plan is not less than the projected disposable income of the debtor . . . to be received during the 5-year period . . . under the plan, or during the period for which the plan provides payments, whichever is longer.”
This statute mandates a plan term of at least five years, but it provides no guidance on when or how the term of a Chapter 11 individual debtor’s plan might be longer.
–Chapter 13: 5 years required, unless very poor
The consumer rule, in § 1325(b)(4), says (emphasis added):
“the term of a plan “shall be—(i) 3 years; or (ii) not less than 5 years, if the current monthly income of the debtor and the debtor’s spouse combined, when multiplied by 12, is not less than . . . the median family income.”
This statute requires a five year plan for an individual debtor, unless that debtor is very poor.
Summary
In 2005, BAPPA changed the statutory rules for large business individuals and middle class consumers to a mandatory five years plan. Before that, (i) Chapter 12 had a three-to-five years option for the debtor, and (ii) Chapter 11 had no minimum-years requirement for an individual debtor.
By contrast, the Chapter 12 rule for farmers has been the same since the inception of Chapter 12 in 1986—the plan is for 3 years, absent a showing of cause. And BAPCPA did not change that rule in 2005.
Further, the enactment of Subchapter V in 2019 (long after BAPCPA came into existence) establishes a three-to-five years option for the debtor—but that option is limited by the ambiguous standard, “as the court may fix.”
Some Observations
So . . . what are we to make of all that?
Here are some observations about the limit differences;
- Congress wants to make bankruptcy relief hard-to-get for all individuals;
- Congress especially focuses on making it hard for middle class individuals and formerly successful entrepreneurs of larger businesses–with its 5-years plan requirements in standard Chapter 11 and in Chapter 13;
- Congress is ok with farmers getting bankruptcy relief in Chapter 12–with its presumptive 3-years plan requirement; and
- Congress is ok with entrepreneurs of small businesses getting bankruptcy relief over 3 to 5 years in Subchapter V.
Conclusion
All that seems weird; inconsistent standards with no indication of the rationale for any of the differences.
And it was BAPCPA in 2005 that created the 5-years plan requirement, which requirement has been rejected both before (in Chapter 12 back in 1986) and since (in the 2019 enactment of Subchapter V).
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MEDIATBANKRY 
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