Chapter 12 Bankruptcy: How It Can Help Family Farmers and Fishermen

A chapter 12 case is a type of bankruptcy designed for family farming, family fisherman operations, or farming or fishing corporation or partnership organizations, that meet a regular annual income requirement and other requirements as determined by the bankruptcy code. The Family Farmer Relief Act of 2019 made Chapter 12 bankruptcy, known as family farmer bankruptcy, more accessible to both small and mid-sized farming and fishing operations.

Chapter 12 bankruptcy is another alternative to chapter 7 and chapter 11. In this article, you’ll learn more about the benefits of filing a chapter 12 bankruptcy, the eligibility requirements that must be met to file a petition, and plan payments.

If you need more information, or if you have questions about chapter 12 bankruptcy or other forms of bankruptcy, schedule your free consultation with the Law Offices of B David Sisson now!

Benefits of Filing for Chapter 12 Bankruptcy

When you file a petition for a chapter 12 bankruptcy, you are petitioning the bankruptcy judge to allow you to establish a payment plan for your family farming or family fisherman corporation or partnership. Once the petition is filed, an automatic stay is issued by the court. Unsecured creditors and secured creditors are legally prohibited from engaging collections activities.

Unlike chapter 7 bankruptcy, a chapter 12 plan allows a family fisherman or family farming corporation or partnership to keep their possessions, such as their home, farm, and equipment required to make a living, while making regular plan payments to catch up on arrearages and paying off at least part of what is owed to unsecured creditors. Much like chapter 13, the plan payments last between three to five years. It could save your family farm or fishing enterprise so that it could be passed on to the next generation.

The filing fee for a chapter 12 bankruptcy is far less expensive than chapter 11: the filing fee is only $275, compared to just over $1,700 to file for chapter 11.

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Eligibility Requirements to File a Petition

To file a petition for a chapter 12 case with the bankruptcy court, you must meet certain eligibility requirements:

  • Family farmers, defined as an individual or an individual and their spouse, must have total debts of less than $4,153,150.
  • Family farmers who are incorporated or a partnership in which more than 50% of the shareholders are members of the same family and the family also conducts the farming or fishing operation. In this instance, 80% of the value of the assets must be related to the farming or fishing operation with the debts not exceeding $4,153,150; and 50% of the debts must be related to the operations being owned by the family operation.
  • Half of the gross annual income generated by the individual seeking to file a chapter 12 case must come from farming or fishing.
  • At least half of the fixed debts must be related to farm or fishing operations.
  • If the family farming or fishing operation is a corporation, it cannot be publicly traded.

Chapter 12 Plan Payments

Similar to chapter 13, a chapter 12 plan includes a payment plan. During the next three to five years, your secured and unsecured debts will receive payments following the approved plan.

This plan doesn’t pay all of the debts in full. It includes all of the necessary expenses to continue the farming or fishing operations during the payment plan period.

Chapter 12 payment plans have unique features. They are not voted on by creditors, although creditors may object to how they are treated. Another unique feature is that the payment plan may still be confirmed over the objection of a creditor. While a chapter 12 plan must be filed within the first 90 days after the filing of the petition, an extension may be given if there are reasons that are “attributable to circumstances for which the debtor should not justly be held accountable.”

Once the payment plan is complete, a discharge is received. However, if there are specific reasons why the plan payments cannot be made, a hardship discharge may be requested.  Under 11 U.S.C. § 1228(b), a hardship discharge is generally available only when:

  •   A debtor fails to complete plan payments because of circumstances outside of their control and through no fault of their own.
  • Creditors received at least as much as they would have received had the debtor filed for chapter 7.
  • The debtor is unable to modify the plan.
  • Hardship discharges do not apply for debts that are considered non-dischargeable in chapter 7.

Schedule Your Free Chapter 12 Case Consultation Now

Bankruptcy can help provide you with a fresh start. To learn more about chapter 12 and how it could help your family fishing or farming operation, schedule your free consultation with the Law Offices of B David Sisson now!