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Bankruptcy for Family Farmers: Chapter 12

Farmer

Did you know that the U.S. Bankruptcy Code affords a special type of bankruptcy protection to qualifying family farmers and family fishermen under Chapter 12? Although we don’t have too many fishermen here in Iowa we certainly do have a lot of family farmers so let’s take a moment to look at Chapter 12 bankruptcy.

What is Chapter 12 Bankruptcy? 

Here in the United States we have a few different types of bankruptcy, each of which are designed to help a different group of debtors who are in over their heads get control of their financial futures. Chapter 12 bankruptcy was created in the 1980s to assist family farmers and fishermen with regular income create and carry out manageable repayment plans in order to get their debt under control. These repayment plans generally span a three to five year period, but they can be longer with court approval. 

Who Can File for Protection Under Chapter 12? 

The United States Courts’ website, a great resource for up to date bankruptcy information, notes that under Chapter 12 family farmers and family fishermen who are eligible to file for protection under this chapter must fit into one of the following two categories:

Category 1- Individuals (or Spouses): In order for an individual (or spouses) to qualify for protection under Chapter 12 they must:

  • Be an individual or part of a married couple engaged in a farming or commercial fishing operation,
  • Have a total debt of less than $4,153,150 in debt (at least 50 percent of which must come from farming expenses) if a farming operation, or less than $1,924,550 in debt (at least 80 percent of which must come from fishing expenses), and
  • Have had more than 50 percent of their gross annual income from the prior tax year be derived from their farming or fishing operation.

Category 2- Corporations/ Partnerships: In order for a corporation or partnership to qualify for protection under Chapter 12 it must:

  • Have more than one-half of its stock or equity be owned by relatives,
  • Conduct a farming or commercial fishing operation led by those relatives,
  • Have more than 80 percent of its assets be related to this farming or fishing operation,
  • Have a total debt of less than $4,153,150 in debt (at least 50 percent of which must come from farming expenses) if a farming operation, or less than $1,924,550 in debt (at least 80 percent of which must come from fishing expenses), and
  • Not have publicly traded stock.

How Does Chapter 12 Bankruptcy Work? 

Without getting too bogged down in details, petitioners who file for bankruptcy protection under Chapter 12 will generally progress through the following steps:

  1. The petitioner files certain documents with the court (such as schedules listing their assets and liabilities, income and expenses, contracts and unexpired leases, etc.) and pays a $200 filing fee plus a $75 administrative fee.
  2. An automatic stay will be put in place which immediately stops most, but not all, creditors from taking actions against the petitioner’s property.
  3. Approximately 21 to 35 days after the petition to declare bankruptcy is filed the trustee will hold a meeting of creditors during which both the petitioner as well as the attending creditors will be put under oath and asked a series of questions.
  4. A repayment plan is crafted under which secured creditors must be paid at least the value of the collateral they were pledged and unsecured creditors are repaid with any “disposable income” that the petitioner has.
  5. A confirmation hearing is held in order to evaluate the petitioner’s repayment plan.
  6. The approved repayment plan goes into effect and the petitioner starts paying off their creditors in accordance with the plan.
  7. After all payments listed in the repayment plan have been made the debtor receives a discharge of all remaining dischargeable debts.

Need Legal Advice? Contact a Local Bankruptcy Attorney 

Unsure if bankruptcy is the right move for you? No problem, the Southeast Iowa bankruptcy and debt relief attorneys of the Noyes Law Office P.C. are here to help you make this crucial decision. One of our experienced attorneys would be happy to sit down with you during a free no obligation consultation at our Fairfield office, so give us a call today at (641) 472-3236 or fill out our online contact form.

Resource:

uscourts.gov/services-forms/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics

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