pixdeluxe / Getty Images Two types of farming operations can qualify for Chapter 12 bankruptcy.
An Individual or Married Couple
An individual or a married couple with a farming or commercial fishing operation and regular annual income can file for Chapter 12. Some rules apply:
Their total debts can’t exceed $4,153,150 for a farmer, or $1,924,550 for a fisherman.At least 50% of their debts must come from the farming operation if they’re a family farmer.At least 80% of their debts must come from the fishing operation if they’re a family fisherman.More than 50% of their gross income in the prior tax year must come from the farming or fishing operation.
A Corporation or Partnership
A corporation or partnership can also qualify as a family farmer or fisherman under certain circumstances:
More than half of the stock must be owned by one family and its relatives. They must actively conduct business operations.More than 80% of the company’s value must be tied to its farming or fishing operations.Total debt limits and percentages are the same as for individual farmers and fishermen.The corporation can’t issue publicly traded stock.
Regardless of whether the filer is an individual, corporation, or partnership, they must not have willfully failed to appear in court. They must comply with all court orders or have been voluntarily dismissed after creditors sought payment through the bankruptcy court within the last 180 days. They also must have received credit counseling from an approved agency within 180 days before filing.
How Chapter 12 Bankruptcy Works
Gather all of your financial information if you want to file for Chapter 12. The procedure works similarly to those of other bankruptcy chapters. You must submit a voluntary petition, the schedules, the statement of financial affairs, a complete list of your debts and creditors, and any other documents the court requests. These documents and any required fees must be filed with the clerk of the bankruptcy court in the area where you live or conduct your business.
Types of Chapter 12 Provisions and Relief
Filing for Chapter 12 bankruptcy protection provides relief from creditors, but it also comes with numerous rules.
The Automatic Stay
An automatic stay goes into effect when a farmer or fisherman files for Chapter 12 bankruptcy, just as with all other bankruptcy cases. The stay prohibits creditors from taking collection actions without the permission of the bankruptcy court. In addition to protecting the debtor, the automatic stay in a Chapter 12 case also protects anyone who is also liable on any of the Chapter 12 debtor’s consumer debts. These are debts incurred for personal, family, or household purposes rather than business debts associated with the farming or fishing operation.
Trustee and Creditors
The court will appoint a trustee to work with the debtor and their creditors. The Chapter 12 trustee will hold a meeting of creditors at the beginning of the proceedings. The trustee and creditors may ask you questions about your petition and financial affairs during the meeting. This information will be used to set up your payment plan.
The Chapter 12 Plan
The debtor must propose a Chapter 12 plan that pays off their debts over a period of three or five years. These can include secured and unsecured debts. The plan must pay creditors within the requirements of bankruptcy law. Secured creditors must be paid at least the value of their collateral. Unsecured creditors must receive as much as they would have been entitled to under a Chapter 7 liquidation bankruptcy. A bankruptcy judge must also confirm the plan. The Chapter 12 debtor must make regular payments to the trustee after a confirmation hearing. The trustee will then make payments to creditors.
A Chapter 12 Discharge
A Chapter 12 debtor doesn’t receive a discharge until all of their plan payments have been made, but there’s an exception to this rule, called the “hardship discharge.” It permits a discharge if the debtor can prove that they failed to make all plan payments due to no fault of their own. The cause was not within their control. One example might be a severe illness. Creditors also must have received at least as much as they would have under Chapter 7 liquidation.
