Chapter 12 Bankruptcy – Dismissal of Case

DISMISSAL. The debtors were a family-owned LLC and one of the members of that family. The debtors operated a dairy  farm.  Both debtors filed for Chapter 12 and the cases were jointly administered. In negotiations with creditors, the debtors reached a stipulated agreement as to plan payments, farm operation and remedies in the case of any defaults by the debtors. The stipulation terms were made part of the Chapter 12 plan. The death of one of the parents resulted in defaults of the stipulation terms from failure to make timely plan payments, failure to file monthly reports, failure to report and turn over the proceeds of the sale of collateral cows, failure to report two loans obtained during the plan period, and failure to meet other stipulation requirements. A provision in the stipulation provided that dismissal of the case if any of the stipulation terms were breached by the debtors. The creditors sought dismissal of the case after the debtors sought modification of the plan to correct the arrearages which had built up during the plan period. The court held that the defaults of the stipulation terms gave rise to the remedies provided in the stipulation which were sufficient to grant dismissal of the cases.  In addition, the court held that the stipulation was an essential foundation of the Chapter 12 plan and the defaults of the stipulation also caused defaults of the Chapter 12 and provided another cause for dismissal of the cases. The court also looked at the issue of whether it was equitable to dismiss the cases, given the priority of Chapter 12 to preserve working farms and farm families. The court noted that the creditors in this case made extensive efforts to work with the debtors to create a workable plan so that the debtors could continue farming. The court held that the efforts of the creditors weighed the equities in the creditors’ favor and held that the Chapter 12 cases would be dismissed. In re Milky Way Organic Farm, LLC, 2017 Bankr. LEXIS 417 (Bankr. D. Vt. 2017).

The case summary is from Vol 28 No. 5 of the Agricultural Law DigestClick here for information on how to subscribe to the Digest.

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