When family farmers in Iowa struggle with debt, the prospect of filing for bankruptcy can be complicated and confusing for anyone who does not have specific knowledge of U.S. bankruptcy law. In particular, family farmers who want to remain in business while seeking bankruptcy protection often discover that Chapter 11 bankruptcy is too complicated and expensive for their needs, while Chapter 13 bankruptcy is not designed for the types of large-scale debts associated with family farms. Here is where Chapter 12 bankruptcy can come in for farmers in Council Bluffs and throughout Iowa.
As the U.S. Courts website explains, Chapter 12 bankruptcy is specifically designed for “family farmers” or “family fishermen” who have a “regular annual income.” We want to provide you with more information about Chapter 12 bankruptcy and to help you determine whether this is the best debt solution for you.
Chapter 12 Bankruptcy is a Type of Reorganization Bankruptcy
The first thing to know about Chapter 12 bankruptcy is that it is a type of reorganization bankruptcy rather than a type of liquidation bankruptcy. Under the U.S. Bankruptcy Code, consumers and businesses can be eligible to file for a reorganization bankruptcy that allows them to restructure debts so that they can avoid liquidating assets while still developing a plan for dealing with creditors.
Chapter 12 bankruptcy allows family farmers and family fishermen—and largely farmers in the state of Iowa—to reorganize debts over a period of time that may be up to five years. In this way, Chapter 12 bankruptcy is most similar to Chapter 11 or Chapter 13 bankruptcy, but it is specifically designed with family farmers in mind. As the U.S. Courts explain, it is “more streamlined, less complicated, and less expensive than Chapter 11,” and it allows for larger debts than those in a consumer Chapter 13 bankruptcy filing.
What is a Family Farmer Under the U.S. Bankruptcy Code?
The U.S. Bankruptcy Code defines “family farmers” and “family fishermen” in two separate ways. To be eligible to file for Chapter 12 bankruptcy, you must fall into one of the following two categories:
- An individual family farmer, or individual family farmer and his or her spouse; or
- Corporation or partnership.
Eligibility to File for Chapter 12 Bankruptcy
To be eligible to file for Chapter 12 bankruptcy, you must meet the following criteria established under the U.S. Bankruptcy Code:
- Individual (or individual and spouse) must be engaged in a farming operation or commercial fishing operation;
- All debts—both secured and unsecured—cannot exceed $4,153,150 for a farming operation or $1,924,550 for a commercial fishing operation;
- At least 50 percent of a family farmer’s total debts must be related to the farming operation (or at least 80 percent for a family fisherman); and
- More than 50 percent of the gross income from the last tax year (or the second and third prior tax years for family farmers) must have come from the farming or fishing operation.
An article in Successful Farming indicates that corn farmers and dairy farmers are most common filers of Chapter 12 bankruptcy.