Understanding the Basics of Chapter 12 Bankruptcy

There are an estimated 2.1 million farms in the United States along with over 1.5 million jobs in the seafood industry. When people in the farming and fishing industries get in financial trouble, one of their main options is to file bankruptcy.

Bankruptcy law is confusing, especially considering there are four different types of bankruptcy: Chapter 7, Chapter 11, Chapter 12, and Chapter 13.

For family farmers and fishermen, filing for Chapter 12 Bankruptcy is the way to go. Keep reading to learn more about Chapter 12 Bankruptcy including what it is, who can file for it, and what it can do for you.

What Is Chapter 12 Bankruptcy?

Chapter 12 bankruptcy is a bankruptcy filing designed solely for family farmers and family fishermen. It's designed to help those workers avoid financial hardships like foreclosure or liquidation. 

This is a relatively new subset of bankruptcy filing with the initial law passed in the late 80s.

Who Can File for Chapter 12 Bankruptcy?

As previously stated, only family farmers and family fishermen can file for Chapter 12 bankruptcy. You'll also need to meet the following requirements:

  • Employed as a family farmer or in commercial fishing
  • Must get at least 50% of total income from farming/fishing
  • Farmers: Total debts cannot exceed 4,153,150 dollars
  • Fishermen: Total debts cannot exceed 1,924,550 dollars 
  • Farmers 50% of total debts must be because of farming needs/operation (cannot include mortgage)
  • Fishermen: 80% of total debts must be because of fishing needs/operation (cannot include mortgage)

All of these must be met in order to file for this type of bankruptcy.

As you might be able to tell, it's very hard to meet all of the requirements. Of the millions of bankruptcy claims filed each year, only around 600 on average are Chapter 12.

How Is Chapter 12 Different from Chapter 13?

Chapter 12 bankruptcy is very similar to Chapter 13. Chapter 12 is more restrictive in terms of the rules and requirements. 

Chapter 13 is generally more easily filed, is more flexible, and has fewer requirements. Read more about Chapter 13 bankruptcy here.

What Does Chapter 12 Bankruptcy Do for You?

Filing for Chapter 12 helps family farmers and family fishermen pay back their debts over time. It also can help them avoid any consequences that can come from debt, including foreclosure, liquidation of assets, and protects them from collection agencies.

It also gives you time to repay your debts while you continue to work.

What Happens When You File

First, you'll need to gather all of your financial information and make sure you qualify. Next, you'll fill out the voluntary petition for relief and submit all of your necessary documentation.

You'll also need to propose a repayment plan for your debt, which usually lasts between 3 and 5 years.

Once you file, an automatic stay will be put in place, meaning creditors are not allowed to take collection actions without court-approved permission. 

A meeting of the creditors and a judge will need to approve your repayment plan and go over all of your submitted materials. Once the plan is confirmed by the judge, you'll begin to follow the repayment plan you proposed.

Consult with a Lawyer

This article gives you some of the basics of Chapter 12 bankruptcy. But, as we said earlier and as you may have gathered from this information, bankruptcy law is confusing and must follow strict guidelines. Chapter 12 bankruptcy is particularly challenging to file and qualify for.

That's why it's always best to consult with a lawyer. They'll be able to gather all of your necessary documents, help you file, and guide you through each step of the process.

Contact us today to set up a meeting with one of our expert attorneys.

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