Chapter 12 Bankruptcy: Much-Needed Help for Family Farmers and Fishermen
If you are a family farmer or fisherman, you know that times were tough even before the recent economic downturn caused by the Covid-19 pandemic. After months of lockdowns, social distancing and all the other “new normal” fallout from Covid-19, you may now find yourself in an untenable debt situation. Chapter 12 bankruptcy, however, was designed to help you get a fresh financial start.
Chapter 12 Bankruptcy Qualifications
How many times can you declare bankruptcy? Both individuals and business entities can qualify for Chapter 12 protection. If you are an individual, you must meet all of the following eligibility requirements:
- You or you and your spouse must be actively engaged in a farming or commercial fishing endeavor.
- Your total operational debts must not exceed $10 million.
- A minimum of 50% of these debts must relate to your farming or fishing operation.
- You must have a “regular annual income,” and at least 50% of your gross annual income must come from your farming or fishing operation.
If you operate as a corporation or partnership, your enterprise must meet all of the following eligibility requirements:
- You or your family or extended family must own at least 50% of the corporation or partnership.
- You or your family or extended family must actively operate the farming or fishing endeavor.
- At least 80% of your corporation’s or partnership’s assets must relate to the farming or fishing endeavor.
- If you are a family farmer, a minimum of 50% of these debts must relate to your farming operation; if you are a family fisherman, 80% of these debts must relate to your fishing operation.
- Your total operational debts must not exceed $10 million.
- If you have corporate stock, it must not be publicly traded.
The $10 million debt ceiling came about as the result of the Family Farmer Relief Act of 2019. Prior to its passage, the family farmer Chapter 12 debt ceiling was $4,153,150, while the ceiling for family fishermen was $1,924,550.
Chapter 12 Bankruptcy Initial Process
To begin your Chapter 12 bankruptcy, you file a petition with the clerk of the bankruptcy court having jurisdiction over the state in which you live or in which your corporation or partnership has its principal place of business. You must also file the following:
- A schedule of your assets and liabilities
- A schedule of your current income and expenditures
- A statement of your financial affairs
- A schedule setting forth any unexpired leases of executory contracts applicable to you or your corporation or partnership
You must also pay the statutory $200 filing fee, plus the $75 miscellaneous administrative fee. Under normal circumstances, you must pay these fees at the same time as you file your petition and supporting documentation. However, if your financial situation is so dire that you cannot pay these fees up front, you can ask the court to let you pay them in installments.
Once you file your petition and supporting documentation, the bankruptcy court sends notices to all your creditors of your Chapter 12 bankruptcy. It also issues an “automatic stay” that prevents your creditors from harassing you by snail mail, telephone, email, text message or any other method for repayment of their debts. This prohibition generally applies to anyone who cosigned any of your farming or fishing loans.
The second step in the Chapter 12 process consists of devising your debt repayment plan. You can file your proposed plan when you file your bankruptcy petition. Although, you may wish to take advantage of the 90-day grace period. This way you can get help from the bankruptcy trustee in constructing this plan.
Keep in mind that your creditors fall into the following three categories:
- Priority creditors, consisting of taxing authorities and the bankruptcy court itself
- Secured creditors, consisting of those who hold a security interest in the asset(s) for which you got the loan(s)
- Unsecured creditors, consisting of those who hold no security interest in your debt to them
Your repayment plan must include full repayment to all your priority creditors and repayment to all your secured creditors of their respective collateral amounts. As for your unsecured creditors, your plan must pay them whatever respective amounts they would receive if your nonexempt assets were liquidated via a Chapter 7 bankruptcy proceeding.
Meeting of Creditors
The third step in the Chapter 12 process consists of the bankruptcy trustee calling a meeting of you and your creditors, usually within 35 days after your initial filing. Expect to be put under oath during this meeting while the trustee and your creditors ask you questions about your financial situation and your proposed repayment plan.
Step four of the Chapter 12 process consists of the bankruptcy judge scheduling a hearing wherein they determine not only whether your repayment plan meets the requirements necessary for confirmation but also whether it’s actually feasible in terms of your ability to live up to it.
This confirmation hearing generally takes place within 45 days after you file your plan with the court. You must attend this hearing, and your creditors have the right to likewise appear and object to confirmation of your plan if they feel it treats them unfairly.
Working Your Plan
Once the judge confirms your repayment plan, you begin making regular defined payments to the bankruptcy trustee. He or she, in turn, distributes these funds to your creditors as called for in your plan.
Generally, you have three years to complete your plan and therefore your Chapter 12 bankruptcy. Under certain circumstances, however, the judge can extend this period for another two years. This would give you a total of five years to “work your plan.”
Whatever your total Chapter 12 bankruptcy period, you cannot take on any significant new family farming or fishing debt unless and until you receive permission from the bankruptcy trustee.
Consulting a Bankruptcy Attorney
Bankruptcy can become very complicated very quickly. You therefore may wish to obtain the advice, counsel and representation of an experienced bankruptcy attorney. They can guide you through the process from beginning to end. Additionally they can help you sort out what type of bankruptcy you might need, as there are different types like chapter 11 bankruptcy.
Work With an Experienced Local Lawyer
Submit a request online today or call us at (866) 345-6784 to get in touch with an experienced bankruptcy lawyer in your area.