Chapter 12 Bankruptcy

Family Farmer or Family Fisherman Bankruptcy

Chapter 12 of the U.S. Bankruptcy Code provides for the adjustment of debt for financially distressed family farmers and family fishermen. Chapter 12 bankruptcy law is unique in that it has been tailored to address the economic difficulties that often affect family farmers and fishermen. Though it is similar to Chapter 11 and Chapter 13 in that it involves a reorganization of debt and a repayment plan to pay creditors over time, it is less complex, less expensive and more streamlined.

As with other forms of bankruptcy, Chapter 12 will enable a debtor to address his or her debt under the protection of the bankruptcy court. Once the petition is filed, all debt collection efforts against the debtor must cease, including all creditor contact and lawsuits. Upon the successful completion of the Chapter 12 repayment plan, which may last 3 years (or more with court approval), any remaining eligible debt will be discharged and the debtor will be free to face a fresh start financially.

Who is eligible to file under Chapter 12?

Family farmers and family fishermen fall under two categories in regard to bankruptcy: an individual or an individual and spouse, or a corporation or partnership. An individual must meet the following requirements to be considered a family farmer or fisherman and therefore eligible to file a Chapter 12 petition:

  • The debtor must be engaged in a commercial fishing operation or farming operation.
  • The debtor's total secured and unsecured debt must not exceed:
    • $3,792,650 for a farming operation; or
    • $1,757,475 for a commercial fishing operation.
  • Exclusive of the debtor's home, at least 50% (for a family farmer) or 80% (for a family fisherman) of the debt must be related to the farming/fishing operation.
  • More than 50% of the debtor's gross income from the previous tax year must have come from the farming/fishing operation. If the debtor is a family farmer, this must apply to the second and third prior tax years as well.

A corporation or partnership must meet the following criteria to file for relief under Chapter 12 of the Bankruptcy Code:

  • More than 50% of the outstanding stock or equity must be owned by the family.
  • The family must conduct the farming/commercial fishing operation.
  • More than 80% of the value of assets must be related to the farming/fishing operation.
  • The total debt must not exceed:
    • $3,792,650 for a farming operation; or
    • $1,757,475 for a commercial fishing operation.
  • At least 50% (for a farming operation) or 80% (for a commercial fishing operation) of the debt must be related to the farming/fishing operation.
  • Any stock issued by the corporation cannot be publicly traded.

Now is your chance to learn more about Chapter 12 and your rights. Find a bankruptcy attorneyin your area.