Bankruptcy Law

What is Chapter 12 Bankruptcy?

Chapter 12 bankruptcy was designed to assist family-run fishing or farming businesses in distress. You can apply if you are a family fisherman or farmer who depends on this work for an annual income.

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Only Chapter 12 can be used to reorganize business debt. This does not apply to debt arising from the ownership of a home. Click on the links below to learn more about Chapter 12 bankruptcy.

The basics of Chapter 12

Farmers and fishermen must create a plan for repaying debt before filing Chapter 12 bankruptcy. The plan is presented to the courts. You must then implement it. It will repay all or part of the debts within the next three to 5 years.

It is always your choice to seek Chapter 12 debt relief. You can’t be forced to file for Chapter 12 relief by your creditors. Only the business owner with the debts can file a Chapter 12 petition.

Comparative Comparison of Chapter 12 and Chapter 11

The U.S. Bankruptcy Code Chapter 12 provides a simplified version of bankruptcy law to address the financial realities of family farms and fishing enterprises. This streamlines the bankruptcy process that these individuals would otherwise have to go through in Chapter 11 and Chapter 13 of the Bankruptcy Code.

The general chapter 12 is:

  • It’s faster and more efficient
  • Less complex
  • Filing for Chapter 11 is less expensive than filing
  • Small family-owned businesses are more streamlined (Chapter 11 is often better for larger corporations).

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Concentrate on bigger debts than the Chapter 13 allowed small debts

It is important to carefully choose the right Chapter for you. Because it was specifically designed for family-run fishing and farming businesses, Chapter 12 works well in many cases.

  • Eligibility for Chapter 12
  • Chapter 12 is only available to farmers and fishermen who are able to manage their debts.
  • The Bankruptcy Code categorizes “family farmers” as well as “family fishermen” into two types:
  • Either a person or a couple
  • A corporation or legal partnership
  • Eligibility for Married Couples and Individuals

Chapter 12 can only be filed by one person (or a married couple) and you cannot file with a business partner. Additional eligibility requirements are:

  • Your relatives or you must be actively involved in commercial fishing or farming
  • For farmers, total debts must not exceed $4,153,150
  • Commercial fishermen must have a total debt of $1,924,550 or lower
  • Your total income cannot have been more than 50% from fishing or farming in the past year.

Businesses are eligible

If a corporation or partnership is closely held and has no publicly traded stock, it may be eligible for Chapter 12 bankruptcy. Additional requirements include:

A family or group of relatives must own at least half of the stock/equity.

A family or group of relatives must work as workers in the fishing or farming operation. They cannot own the land from afar or have it managed by other people.

A minimum of 80% must be invested in farm or fishing assets. Boats, equipment, buildings, and so on are just a few examples.

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As of 2020, total debt is limited to $4,153,150 per farm and $1,924,550 per commercial fishery or fishing company. This does not include any debt incurred from the purchase of a home.

Minimum 50% must be for the farm business ($2,076,575 by 2020).

Minimum 80% must be for the fishing enterprise ($1,539 640 as of 2020).

Stocks cannot be traded publicly

“Regular Annual Income.”

Chapter 12 requires that you have regular income from your family’s fishing or farming business (which can also be seasonal) in order to qualify.

To ensure that your annual income is stable, you need to know what the income requirement is. This is helpful during the reorganization phase and repayment phase as you can accurately predict how much you will make over the year. This allows you make every payment.

Other eligibility considerations

In the past 180 days, you have failed to appear before a bankruptcy court. Your bankruptcy will be dismissed. This does not apply to any legal reasons or accidents which led to your missing the court date.

You have failed to comply with all court orders within the last 180 days. This will also result in the dismissal of your bankruptcy case.

Because they have liens on your property, creditors may ask the bankruptcy court to take possession of it. If the debt is no longer owed, bankruptcy cases can be dismissed at this time.

In the last 180 days, you have not received court-ordered credit counseling.

These rules are not always clear and there are exceptions. Talk to your U.S. trustee, bankruptcy administrator or attorney about specific circumstances.

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Bankruptcy Process Filing Chapter 12 Petition

The first step in filing a bankruptcy case is to gather documents and complete paperwork. This is your petition, which must be filed at your local court.

The court is located in the location where you or your relatives reside or where the farm, fishing or farming operation is. You can either file a petition jointly with your spouse or separately.