Confirmation plan binds farmer

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A farmer in bankruptcy may have an absolute right to dismiss his case, even after confirmation of his reorganization plan.

Nevertheless, if a creditor has relied to his detriment on the confirmation plan, the farmer can be forced to honor it, too.

Dairy farmers Walter and Carla Wiese filed for bankruptcy in the Western District of Wisconsin under Chapter 12 after the Community Bank of Central Wisconsin commenced foreclosure and replevin actions against them.

A reorganization plan was ultimately reached, which provided that: the Wieses would release lender liability claims against the bank; and the bank agreed to release a lien held on funds in escrow, forgive default interest, set a cap on attorneys’ fees and out-of-pocket expenses, allow a four-month delay prior to the Wieses’ recommencing payment, and recalculate the Wieses’ loan at the contract rate of interest rather than at the higher default rate of interest.

However, when the Wieses failed to qualify for a loan program they thought would be available, and the court denied their motion vacate the confirmation order, they moved to dismiss the petition, pursuant to 11 U.S.C. 1208(b).

The bankruptcy court granted the motion to dismiss, but pursuant to sec. 349(b), held the terms of the confirmation plan were binding.

The district court reversed, holding that the purpose of the absolute right to dismiss in sec. 1208(b) would be nullified if the confirmed plan remained binding.

The bank appealed in turn, and the Seventh Circuit reversed the district court, in an opinion by Judge John D. Tinder.

The court noted that the confirmation plan was the result of negotiations, during which the bank gave up certain rights, including the lien it had on money held in escrow.

After the plan was confirmed, the money in escrow was released to Wieses, and the bank thus lost the ability to collect it.

Because the bank gave up the lien in reliance on confirmation, the court held it was appropriate for the bankruptcy court to keep the confirmation binding on the Wieses.

Judge Tinder wrote, “The Bank’s agreement to give up the lien was made ‘in reliance on the bankruptcy case,’ and when the Wieses decided to dismiss the case, it was not inappropriate for the bankruptcy court to consider the harm that dismissal caused to the Bank.”