Chapter 12 Bankruptcy

Heading up a faltering farm or fishing business while overseeing a strained family budget can understandably cause confusion and anxiety. Should you throw up your hands and file for bankruptcy? If so, what are the alternatives? And why are there so many?

Chapter 12 bankruptcy is a potential answer for family-owned farms and fisheries. This portion of the U.S. Bankruptcy Code was specifically enacted by Congress to meet the needs of financially distressed family farmers and fishermen. The legislation’s primary purpose was to provide opportunities to reorganize debt and keep working farms and fisheries in operation.

You can get answers to all your bankruptcy questions at Bunch & Brock, Attorneys at Law, in Lexington, Kentucky. We’ve been representing debtors and creditors – including family farm and fishing operations — in bankruptcy actions for more than 30 years. We are trusted, knowledgeable business owners who can relate to your unique problems.

About Chapter 12 Bankruptcy

Chapter 12 bankruptcy is designed for farmers and fishermen who make a consistent income from this work. This means individuals whose livelihood comes primarily from their family farm or fishery. Chapter 12 bankruptcy law was created to provide economically stressed  farmers and fishermen with a framework for successful reorganization of debt. If you’re struggling to make ends meet, the law can help you to move forward with a plan for success.

Chapter 12 is similar to Chapter 13 bankruptcy, but more suitable to the kinds of debt seen in family farm/fishery situations.  Chapter 12 has higher debt ceilings to accommodate the large debts that may come with running these operations, and it also offers the debtor more power to eliminate certain types of liens. Only a few hundred people file for Chapter 12 each year, whereas many times that, hundreds of thousands of individuals and small business owners, file for Chapter 13.

The other bankruptcy option, Chapter 11, is better suited to large corporations instead of family operations. Chapter 12 is less complicated and less expensive than Chapter 11, offering a more streamlined process for farmers and fishermen.

Chapter 12 Benefits

If your family business is on the brink of bankruptcy, Chapter 12 can help you pause, regroup, and reorganize. Once you file a Chapter 12 petition, your creditors must cease most types of collection activity.

BAll creditors receive notice of your bankruptcy case, and a legal “stay” prevents them from garnishing your wages, filing lawsuits, or harassing you with phone calls.

With Chapter 12 protection, a financially distressed farmer or fisherman can create a plan to repay debt over a period of three to five years. This repayment plan includes installment payments toward all or part of the debt. Once the Chapter 12 agreement is satisfied, your debt is completely discharged. Creditors who receive full or partial payment under the plan cannot pursue you further to obtain additional funds.

It’s important to note that some types of debt cannot be discharged in Chapter 12 proceedings, including alimony and child support and debts resulting from unlawful activity. Secured debt, such as your home, is not discharged, and these payments should continue uninterrupted.

Who is Eligible for Chapter 12?

Under the Bankruptcy Code, Chapter 12 filers must be “family farmers” or “family fishermen,” falling into two categories: (1) an individual (or individual and spouse ) or (2) a corporation or partnership.

Individuals or couples engaged in farming or commercial fishing must meet the following criteria:

  1. Total outstanding debt cannot exceed $4,153,150 for a farming operation or $1,924,550 for a fishing business.
  2. The debt (excluding home mortgage) of a family farmer must be at least 50% related to the farming operation. A fisherman’s debt must be at least 80% related to the business of fishing.
  3. Past tax filings must show more than 50% of total family gross income coming from the business.

If your farm or fishery is a corporation or partnership, it must be family-run to qualify for Chapter 12 assistance. Stock cannot be publically traded, and more than half the equity must be owned by one family (or one extended family). More than 80% of the value of corporate or partnership assets must be farming- or fishing-related.

The Chapter 12 Procedure

Bankruptcy law and procedure is complex, and it is not recommended that you proceed without the advice of a qualified attorney.  First, under recent bankruptcy laws, credit counseling is mandatory prior to filing your petition in bankruptcy court. Once counseling is complete, the petition can be filed with the appropriate court. It will need to be accompanied by several forms detailing information about your assets and liabilities, income and expenses, and other information.

Your case will be evaluated by a designated trustee, who makes decisions about (and ultimately disburses) payment distributions to your creditors. About a month after your successful filing, the trustee will hold a “meeting of creditors,” which you, the debtor, must also attend. You have the right to representation by an attorney at this meeting, which is certainly advisable.

During the meeting, you must answer questions under oath regarding your financial status and discuss a proposed repayment plan. It is important that the plan be detailed, complete, and accurate. After this, your unsecured creditors will have 90 days to file any claims against you – or 180 days in the case of a governmental creditor. Later, there will be a confirmation hearing to finalize details of the Chapter 12 repayment plan. Once the plan has been executed in full, your case, and your debt, is discharged.

Moving Forward

Filing Chapter 12 bankruptcy may be a viable option for your situation. At Brunch & Brock, we think you’ll be impressed by our experience, honesty, and customer service and will choose us for quality representation in your case. Rest assured, we will inform you of all your legal options and rights and creatively strategize for your most favorable outcome.

To discuss your case and Chapter 12 eligibility, call Bunch & Brock, Attorneys at Law, today at (859) 353-6883  or contact our firm online.