Summary of a Recent
Judicial Development in
Bankruptcy

Chapter 12 Debtors Not Entitled to
Hardship Discharge

Bhargavi Motukuri
National AgLaw Center Graduate Assistant

Summary of Decision

In In re Grooms, 64 Fed. Appx. 922 (6th Cir. 2003), the United States Court of Appeals for the Sixth Circuit held that Chapter 12 debtors were not entitled to a hardship discharge despite the fact that the county in which debtors farmed was declared a federal disaster area for three years in a row.

Background

Debtors Dale Grooms' and Rosa B. Grooms' Chapter 12 plan was confirmed on April 25, 1997. See id. at 922. The Chapter 12 Trustee filed a motion to dismiss the debtors' case, asserting that they failed to make all required payments and also that five years elapsed without the debtors completing the plan. See id. at 922-23. The debtors claimed that they were exempt from making payments from 1997 through 1999 because the county in which they farmed was declared a federal disaster area for each of those years. See id. at 923. The bankruptcy court denied the debtor's motion for hardship discharge, which was upheld by the Bankruptcy Appellate Panel for Sixth Circuit. See id. The debtors appealed the appellate panel's decision to the Sixth Circuit.

Analysis and Holding

The court held that the bankruptcy court correctly dismissed the case because the debtors failed to make the payments required under the confirmed plan. See id. (citing 11 U.S.C. § 1208 (c) (6) (citations omitted)). The court also held that the bankruptcy court correctly denied the debtors' motion for a hardship discharge even though the county in which they farmed was declared a federal disaster area for three years in a row "because the unsecured creditor had not been paid the amount that would have been paid under a Chapter 7 liquidation, which is prerequisite to receiving discharge under 11 U.S.C. § 1228 (b)." Id. at 923-24.

The case was decided on May 12, 2003; this summary was posted Mar. 21, 2005.