Chapter 12 Bankruptcy FAQ

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What is Chapter 12 Bankruptcy?

Chapter 12 provides debt reorganization for individuals or parterships classified as "family farmers" or "family fishermen". Functionally, Chapter 12 is nearly identical to Chapter 13, in that it involves establishing a plan to repay debts over the course of a three to five year period. However, Chapter 12 includes several provisional differences that specifically address needs unique to owners in the farm and fishing industries. These provisions are covered in the next question.

How does Chapter 12 address the needs of farmers and fishermen?

The key advantage of Chapter 12 for farmers and fishermen is the allowance of a higher debt ceiling than is provided by Chapter 13. This higher ceiling is required due to the fact that owners of farm or fishing businesses will typically incure much higher debts than the average wage-earner. While the corporate-oriented Chapter 11 option also has higher limits, it is far more complex and expensive to file than Chapter 12.

Which farm and fishing businesses qualify for Chapter 12 relief?

To file for Chapter 12 relief, an individual classified as a family farmer or fisherman must meet criteria including the following key points:

You must currently be engaged in a farming/fishing operation

Total unsecured and secured debts of the operation shall not exceed $3,237,000

At least 80% of your fixed-amount debts must relate to your farm or fishing business

Over 50% of your gross income for the preceding tax year must have been raised by the farming/fishing operation

Can couples file jointly? What about farming partnerships?

Yes, a husband and wife for instance, may file a single joint petition. A partnership may file corporately, but will be subject to additional qualifications, which include:

Over 50% of outstanding stock/equity in the partnership must be held by one family

This family must conduct actual farming operations

The farming operation may not issue publicly traded stock

If I file for Chapter 12, will I remain in control of my farm?

In terms of farm operations, yes. While chapter 12 mandates the assignment of a court-appointed Trustee, control of day-to-day operations remains in the hands of the debtor (owner). In Chapter 12 cases, the Trustee's function is limited to financial oversight. The Trustee is responsible for making recommendations regarding Chapter 12 dischargeability, exchanging information with interested parties, verifying that the debtor will be able to make payments on time, etc.

Disclaimer: The content of this page is intended for informational purposes only, and does not constitute legal advice/counsel.

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