Chapter 12 begins with the hearing. Ponyboy listens to Randy, Cherry, and the other Socs testify, all the while feeling frustrated that they keep saying Johnny killed Bob. At this point, he has totally convinced himself that he was the one who committed the murder. Darry and Soda also testify, and tell the judge that Dally was a good friend of theirs, even though that association with a perceived hoodlum will risk their credibility. When it is Ponyboy's chance to be questioned, the judge steers clear of questions about Bob's death. In the end, the judge acquits Ponyboy and the case is closed.
But Ponyboy becomes extremely absent-minded after the hearing. He is disturbed, and his grades begin to drop. His English teacher approaches him and tells him he's failing class, but if he can write a good semester theme, he will get a C, "taking into consideration the circumstances." The English teacher says the theme should be on "anything you think is important enough to write about." Ponyboy reacts sarcastically, although he is polite to the teacher, and leaves.
At lunch, Ponyboy drives to the grocery store with Two-Bit and Steve, and hangs out smoking a cigarette on the fender of Steve's car while the other two are inside. A car full of Socs pulls up, but Ponyboy doesn't feel scared - he doesn't feel anything atll, even when one of them accuses him of killing Bob Sheldon and threatens him. He breaks off the end of his bottle and says, "You get back into your car or you'll get split," scaring the Socs off.
Two-Bit has seen the whole thing, and asks Ponyboy if he really would have used the broken bottle as a weapon; Ponyboy says he would have. Two-Bit says, "Ponyboy, listen, don't get tough. You're not like the rest of us and don't try to be..." but then he grins because he notices that Ponyboy is picking up the pieces of broken bottle from the ground to avoid people getting flat tires.
When Ponyboy gets home, he tries to write the theme for English class, but he is easily distracted and can't concentrate. Soda comes home and has a cigarette, which tips Ponyboy off that something is wrong, since Soda hardly ever smokes. But when Ponyboy asks him if something is wrong, he shakes his head. But after supper, Darry and Ponyboy get into a spat about Ponyboy's grades, which have dropped significantly. But Darry says that "schoolwork's not the point. You're living in a vacuum, Pony, and you're going to have to cut it out." He says that they're all upset about losing Johnny and Dallas, but that Ponyboy has to come back to reality.
When Ponyboy looks at how Soda is reacting to the fight, he sees that his face is white. Then Soda runs out the door, dropping an envelope. It is the letter he wrote to Sandy, returned unopened. Ponyboy realizes that Soda has his own problems, but Ponyboy has been too wrapped up in himself to notice them, or to listen if Soda has tried to talk about them. Darry and Ponyboy decide to go after Soda, and chase him into the park; Ponyboy tackles him, knocking them both over.
Soda confesses how upset it makes him when Darry and Ponyboy fight. He says that all they have is each other, and that they need to stick together in order not to end up the way Dally was before he died, hardened. Darry and Ponyboy agree not to fight anymore, suddenly realizing how much they accidentally have been hurting Soda. The brothers race back to the house.
Ponyboy finally picks up the copy of Gone with the Wind that Johnny left to him, and lets it sink in that Johnny was the one who killed Bob, and that Johnny is now dead. A note from Johnny falls out of the book. Among other things, it says:
I've been thinking about it, and that poem, that guy that wrote it, he meant you're gold when you're a kid, like green. When you're a kid everything's new, dawn. It's just when you get used to everything that it's day. Like the way you dig sunsets, Pony. That's gold. Keep that way, it's a good way to be.
It also instructs him to tell Dally, but it's too late now. Ponyboy realizes that Dally has died because he let his gold fade, but that it doesn't have to be that way for all the Greasers and disadvantaged people.
So Ponyboy calls Mr. Syme, his English teacher, and asks if his theme can be longer than five pages. When he gets permission, he begins to think about how to start the story, and decides to begin with "When I stepped out into the bright sunlight from the darkness of the movie house, I had only two things on my mind: Paul Newman and a ride home..." which is the opening of The Outsiders itself.
Although Ponyboy became an unreliable narrator at the end of Chapter 11, when it was clear he was in denial over Johnny's death, he redeems himself as trustworthy to the reader at the very beginning of Chapter 12, by distinguishing Ponyboy the narrator from Ponyboy the character in the story. He explains that the doctor had a talk with the judge before the hearing, and "I didn't know what he had to do with it then, but I do now."
Now that Ponyboy has separated himself as narrator from the character in the story, he uses direct address frequently. He has used it in the past, but now the reader realizes that Ponyboy in the present, the narrator, is in a different emotional state than the Ponyboy in the story. He uses phrases like, "And you know what?" and "I know I don't talk good English (have you ever seen a hood that did?)," directly addressing the reader. The formalism this split induces - of a story-within-the-story and a narrator doubling back on himself - suggests a mise-en-abime that temporarily shifts the emphasis from the narrative to the question of storytelling: we are now aware of that which lies outside the ostensible "story", so that, as those events come to a head, they in turn lose some of their dramatic force.
Johnny's last words, "Stay gold," echo in this chapter when Ponyboy breaks a bottle to defend himself against the Socs. Two-Bit says, "Ponyboy, listen, don't get tough. You're not like the rest of us and don't try to be..." Ponyboy is confused by what Two-Bit means, since he felt nothing when the Socs approached him. But he proves that he is still "gold" by bending down to pick up the pieces of broken glass from the ground without even thinking about it.
Ponyboy and Darry's relationship is once again redefined in this chapter, this time in terms of how it affects Sodapop. He is so upset by the way they always fight that he runs away. They feel selfish for not having realized the effects of their actions on others. Soda argues: "We're all we've got left. We ought to be able to stick together against everything. If we don't have each other, we don't have anything." This idea rings true with Darry and Ponyboy, and finally it is Soda who brings them together.
The various strands - formal and narrative - are tied together in the closing sentences, as the novel ends as it began. The circle is satisfying for its symmetry, but seems to run against Ponyboy's assertion that he has moved on and wants to use his tale to help others. Instead, we are left with the impression of a closed loop, an inexorable tide, a vicious circle that allows no escape. Hinton closes her novel with hope, yes, but also an intimation of its opposite.