Chapter 12 Bankruptcy

March 25, 2016

While many people are familiar with chapters, 7, 11, and 13 another chapter that is available is chapter 12. A chapter 12 is agricultural and is for “family farmers” or “family fishermen.” with “regular annual income.” The chapter 12 allows for farmers and fishermen to reorganize their debts in a reorganization plan to pay all or some of their debt. The chapter 12 plan is an installment plan over three to five years. Generally, the plan is for three years unless the court approves longer “for cause.” If the plan proposes to pay 100% of child support or alimony if any exist, it must be for five years and must include all of the debtor’s disposable income. A case may not exceed 5 years.

In order to file for chapter 12 the debtor must meet four criteria when they file the case:

  • The debtor(s) must be engaged in a farming operation or a commercial fishing operation.
  • The total debts must not exceed $4,031,575 for a farming operation or $1,868,200 for a fishing operation.
  • If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts must be related to the farming or fishing operation.
  • More than 50% of the gross income of the individual or the husband and wife for the preceding tax year must have come from the farming or commercial fishing operation.

Chapter 12 is less complicated, and less expensive than chapter 11, but allows for more debt than a chapter 13 because Chapter 13 is designed for wage earners who have smaller debts than those facing farmers. In chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.
The only a family farmer or fisherman with “regular annual income” may file chapter 12, but the chapter 12 makes allowance farmers and fishermen whose income is seasonal.

If you have any questions about bankruptcy, contact the bankruptcy attorneys at Fears Nachawati today. Call 1.866.705.7584 or send an email to fears@fnlawfirm.com for a free consultation.

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