Chapter 12 Bankruptcy

Chapter 12 bankruptcy is much lesser known than Chapter 7 and Chapter 13 bankruptcy, but if you run a farm or fishing business, this is the type of bankruptcy you should be considering. Because this is a relatively obscure section of the Federal Bankruptcy Code, it is all the more important that you consult with an experienced bankruptcy attorney if you are considering filing under Chapter 12. Who can file Chapter 12 bankruptcy? Chapter 12 bankruptcy is designed specifically to meet the needs of family farmers and fishermen; accordingly, the regulations regarding who can file this type of bankruptcy concern income and debts directly relating to farming or fishing. For example, debt owed on a home is not included in a family farmer’s debts for the purposes of filing Chapter 12 bankruptcy. Although precise figures may change, generally a family farmer’s debts cannot exceed a certain amount ($1.5 million as of this writing), and a certain percentage of that debt must come from farming (80% as of now). Moreover, in order to qualify as a family farmer under Chapter 12 provisions, the debtor must have earned at least half of his gross income from farming in the previous year, and he must make enough to be able to make payments in a repayment plan. How does Chapter 12 bankruptcy work? Chapter 12 bankruptcy resembles Chapter 13 in that it is a reorganization of assets, but it has a much higher debt ceiling; this was done purposely so that farmers and fishermen would have a more workable option in bankruptcy as they generally incur much higher debts in the normal course of business than others. Just as in Chapter 13, there must be a repayment plan that lasts between three and five years, during which the filer will repay part of all of his debts. As with Chapter 13, if a debtor has trouble meeting payments, the plan may be restructured, bankruptcy rescinded, etc. Once the repayment plan has been completed, any remaining debts are wiped out. Again, as this is a complex area of law, be sure to consult with an experienced bankruptcy attorney regarding your specific situation.