11 U.S.C. Section 1222 - Chapter 12 Plan Contents

What Is Section 1222?

Section 1222 prescribes the contents of a Chapter 12 plan. It is the agricultural counterpart to Section 1322 in Chapter 13, but with several features designed to recognize the realities of farm and fishery operations: tolerance for irregular and seasonal payments, broader power to modify secured claims (including those on principal residences associated with the farm), and special protections for agricultural lenders.

Section 1222 divides plan provisions into mandatory ones (subsection (a)), which every plan must contain, and permissive ones (subsection (b)), which a plan may contain at the debtor's election. Subsection (c) governs plan duration. Compliance with Section 1222 is a precondition to confirmation under Section 1225.

Section 1222(a): Mandatory Provisions

Every Chapter 12 plan must:

• Provide for the submission of future earnings or income. Under (a)(1), the plan must commit such portion of the debtor's future earnings or other future income to the supervision and control of the trustee as is necessary for execution of the plan.
• Provide full payment of priority claims. Under (a)(2), the plan must provide for full payment, in deferred cash payments, of all claims entitled to priority under Section 507, unless the holder of a particular claim agrees to different treatment, with a special accommodation for tax claims resulting from the sale of farm assets.
• Provide equal treatment within classes. Under (a)(3), if the plan classifies claims, the plan must provide the same treatment for each claim within a particular class.
• Provide special treatment for sale-of-farm-asset tax claims. Under (a)(2)(A), claims resulting from the sale or transfer of property used in the debtor's farming operation may be treated as unsecured claims not entitled to priority, subject to certain conditions. This provision, added in 2005, is one of the most farmer-favorable features of the chapter.

Section 1222(b): Permissive Provisions

Section 1222(b) is the most operationally significant part of the statute. A plan may, among other things:

• Designate classes of unsecured claims as provided in Section 1122, provided that the plan may not discriminate unfairly against any class so designated (but may treat claims for consumer debts co-signed by an individual differently from other unsecured claims).
• Modify the rights of holders of secured claims (other than certain home-mortgage claims) and unsecured claims, or leave them unaffected. This is the cramdown authority. Unlike Chapter 13's Section 1322(b)(2), which prohibits modification of a security interest in the debtor's principal residence, Section 1222(b)(2) contains no anti-modification clause for residential real property associated with the farming operation. A Chapter 12 plan may strip down a farm mortgage to the present value of the collateral.
• Cure or waive any default.
• Provide for payments on any unsecured claim to be made concurrently with payments on any secured claim or any other unsecured claim.
• Provide for the curing or waiving of any default within a reasonable time and maintenance of payments while the case is pending.
• Provide for the payment of any allowed unsecured claim that is for a tax incurred during operation of the farming or fishing business to be paid out of estate property and only when such property is liquidated.
• Provide for the assumption, rejection, or assignment of any executory contract or unexpired lease.
• Provide for the sale of all or any part of the property of the estate or distribution of all or any part of the property of the estate among those having an interest in it.
• Section 1222(b)(9): Special agricultural-lender provision. A plan may provide for payment of allowed secured claims consistent with Section 1225(a)(5), over a period exceeding the duration of the plan if necessary for the appropriate amortization of the secured claim. This is the so-called "30-year farm mortgage" provision that allows long-term amortization of agricultural real-estate debt extending well past the plan's 3-to-5-year duration.

The combination of full cramdown (no residential anti-modification clause), strip-down to collateral value, and long-tail amortization beyond plan duration makes Chapter 12 dramatically more flexible than Chapter 13 for debtors with real-property-secured agricultural debt.

Section 1222(c): Plan Duration

Section 1222(c) provides that the plan may not provide for payments over a period that is longer than 3 years, unless the court for cause approves a longer period not to exceed 5 years. The 3-to-5 year range mirrors Chapter 13 but is interpreted more flexibly given the seasonal-revenue character of agricultural operations.

The cause standard for extension to 5 years is typically met where the debtor's plan involves substantial unsecured-claim repayment, a long-tail amortization of secured claims under (b)(9), or other features that require additional time. Courts have been receptive to 5-year plans where the debtor demonstrates that the extension produces a meaningful additional dividend to creditors.

The plan-duration limit applies to the period of plan payments, not the period of secured-claim amortization. Under Section 1222(b)(9), long-term secured claims may be paid over a longer period, with the plan technically completed at 5 years but the secured claim continuing under the modified terms thereafter.

Interaction with Confirmation Standards

A plan that complies with Section 1222 is not automatically confirmable. Confirmation also requires satisfaction of Section 1225, including good faith, feasibility, best-interests-of-creditors (liquidation analysis), and the appropriate treatment of secured claims. Where Chapter 12 cramdown is invoked under Section 1222(b)(2), Section 1225(a)(5) requires that the plan either provide secured-creditor acceptance, surrender of collateral, or retention of the lien plus deferred cash payments equal to the present value of the collateral.

Related Bankruptcy Code Sections

This section operates in concert with several other provisions of the Bankruptcy Code:

• Section 109(f) - Chapter 12 eligibility
• Section 1208 - Conversion or dismissal of Chapter 12
• Section 1228 - Chapter 12 discharge
• Section 1226 - Payments to creditors
• Section 1322 - Chapter 13 plan contents (for comparison)
• Section 507 - Priorities

Understanding how these sections interact is important for family farmer and family fisherman debtors, agricultural lenders, and counsel evaluating Chapter 12 plan strategy.