Chapter 12 Farm Bankruptcy

What Is Chapter 12 Bankruptcy

A Chapter 12 bankruptcy provides relief for people in partnerships classified as “family fishermen” or “family farmers”.

The Chapter 12 Bankruptcy

It is a plan that is established to pay debts over the course of a three and five year period. Chapter 12 bankruptcy provides a higher debt ceiling because farmers and fishermen usually incur much higher debts than the average wage-earner. A Chapter 12 bankruptcy is similar to Chapter 13 bankruptcy but Chapter 12 bankruptcy has more benefits for debtors. “Family farmers” and “family fisherman” can avoid foreclosure and liquidation by filing a Chapter 12.

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Chapter 12 Bankruptcy Process

First, you the debtor, has to file a voluntary petition for relief.  A bankruptcy trustee will be assigned to the case, and the trustee will focus mostly on monitoring the debtor’s operations and review documents. A trustee is also supposed to advise the court and collect and disburse payment.  Debtors only have 90 days from the date that they file bankruptcy to propose a repayment plan. They may request the court to extend the time in certain special circumstances.

 A trustee reviews the payment plan proposed by the debtor and makes recommendations to the bankruptcy court. The minimum period for a repayment plan is three years but the debtor can pay all debts sooner than that. A court approval is needed for the plan to be extended to five years.  If a debtor’s repayment plan is not confirmed or if the debtor cannot make required payments, the Chapter 12 case can be dismissed.

Does your Farming or Fishing Business Qualify?

There is criteria that a farmer or fisherman must meet to file for a Chapter 12 Bankruptcy. This includes:

  • You must be actively participating in your fisherman or farmer operation
  • Your farming or fishing operation must have raised over 50% of your gross income for the preceding tax year
  • Your fishing or farming operation must be responsible for 80% and over of your fixed-amount debts
  • The total amount of your unsecured and secured debt of your fishing or farming operation  shall not be more than $3,237,000
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Farming Partnerships and Couples

Husband and wives can file a single joint petition but a partnership can file corporately.  However, partnerships need to meet the following additional criteria:

  • No publicly traded stock can be issued by the farming operation
  • One family must own more than 50% of outstanding stock or equity in the partnership
  • Family owning over 50% must conduct actual farming

Filing Chapter 12

After you file for bankruptcy for a farming operation, you will remain in control of your farm. That means that you will control the day-to-day operations of the farming operation. The court-appointed trustee’s role will be to make recommendations regarding Chapter 12 dischargeability, exchanging information with interested parties, verifying that the debtor is able to make payments on time.

No one wants to go through a situation where they have to file for bankruptcy. You will need an experienced bankruptcy lawyer to help you navigate the many potential pitfalls of a Chapter 12 bankruptcy.