Chapter 12 was created to extend the benefits of Chapters 11 and 13 to family farmers and family fishermen. As a Chapter 13 Bankruptcy, the debtor in a chapter 12 case proposes a reorganization plan to collect outstanding debts and pay creditors within 3 to 5 years. When it comes to paying off creditors, Chapter 12 may serve the farmer’s goals better, as it gives the farmer much more flexibility and control over reorganizing his debts than other types of bankruptcy. Chapter 12 is likely to be more useful because it allows farmers to offer a seasonal payment repayment plan that coincides with harvest and farm products, unlike other bankruptcy chapters.
In a Chapter 12 Bankruptcy, the debtor filing for Chapter 12 must file their payment plan within 90 days of filing for bankruptcy. The debtor must propose a Chapter 12 plan that pays off their debts over a period of three to five years. The plan does not have to pay all unsecured debt, provided that the farmer agrees to pay all “disposable income” that is expected to fund the plan’s payments for a period of at least three or more than five years. The plan must pay creditors as required by bankruptcy law.
The court noted that for a Chapter 12 Bankruptcy reorganization plan to work, the court must consider whether the debtor will be able to make all payments as planned. If the court and its bankruptcy judge do not uphold the plan, changes will need to be made and a new plan filed. If the judge approves your plan, you will start paying your bankruptcy trustee from the plan.
For a debtor who intends to continue farming, chapter 12 is the most appropriate type of bankruptcy. The situation in which a family farmer may choose to proceed under Chapter 12 over another type of bankruptcy occurs when the goal is to continue farming.
Both family and corporate farming and fishing businesses are covered under Chapter 12. Partnerships and corporations cannot file for bankruptcy under Chapter 12 unless one family no longer owns 50% of its own stock or equity investment.
Under chapter 12, an individual or a married couple, and sometimes a corporation or partnership, files a petition for relief, which entitles the individual or couple or a court order to protect them from creditors. A chapter 12 case begins when the debtor requests help voluntarily.
If a debtor chooses to recover or restructure his debt, he will file for Chapter 11, Chapter 12, or Chapter 13 bankruptcy, depending on the type of debtor. Most farmers who file for bankruptcy do so under Chapter 12 because it provides a relatively quick and predictable way to restructure debt and prevent liquidation or foreclosure.
Most Chapter 12 debtors continue to farm or fish after filing for bankruptcy. Thus, Chapter 12 bankruptcy provides relief to debtors who qualify as family farmers and family fishermen with regular income. Chapter 12 bankruptcy is designed to allow a family farmer or family fisher with a fixed annual income to continue farming and restructure debts under court protection.
Chapter 12 of the bankruptcy law prohibits creditors and debt collectors from taking action against family farms and family fishermen when they pay off their debts. Simply put, filing for Chapter 12 bankruptcy helps family farmers and fishermen write off their debts, reorganize their finances, continue to run their businesses, and maintain the equipment they need to do their job.
Bankruptcy Chapter 12 allows eligible debtors to create a repayment plan to take control of their finances while they continue to run their businesses. Chapter 12 is similar to other types of bankruptcy, but has many benefits, especially for farmers and fishermen. Chapter 12 is leaner and cheaper than Chapter 11, which is designed to restructure large farms, and Chapter 12 is more flexible than Chapter 13 because Chapter 12 can be adapted to the seasonal income patterns of many farmers and fishermen. Chapter 12 is suitable in many cases because it was created specifically for family fishing and farming businesses.
In addition to protecting the debtor, automatic stay also protects anyone who is also liable for any consumer debts of Chapter 12 debtors. While a Chapter 12 Bankruptcy is in effect, creditors are also prohibited from taking any action against co-owners. Signatories or co-debtors who are otherwise jointly and severally liable for the debt.« Back to Glossary