Chapter 12 bankruptcy serves as an alternative to the more commonly used Chapter 13 reorganization or “wage earner’s” bankruptcy. Chapter 12 is specifically designed for family farmers and family fishermen, allowing them to restructure their business finances and avoid repossession or foreclosure. If you’re involved in farming or fishing and are facing serious financial problems, you may wonder if you are eligible to file for Chapter 12 bankruptcy.
Basic Eligibility Requirements for Chapter 12 Bankruptcy
According to U.S. bankruptcy codes, Chapter 12 bankruptcy may only be used by a family farmer or family fisherman with a “regular annual income.” Seasonal income may satisfy the requirements for regular annual income. Other Chapter 12 eligibility requirements include:
- Must be either an individual or married couple, or a partnership or corporation or other organized business entity where one single family owns at least 50 percent of the stock or equity in the company.
- Must run a farming or a commercial fishing operation.
- Must have total debt of no more than $4,153,150 for a farming operation or $1,924,550 for a commercial fishing operation.
- For farming operators, at least 50 percent of total fixed amount debts (exclusive of the debtor’s home) must have been incurred as part of the farming operation.
- For commercial fishing operators, at least 80 percent of total fixed amount debts (exclusive of the debtor’s home) must have been incurred as part of the commercial fishing operation.
- At least 50 percent of the debtor’s gross income must come from farming or commercial fishing operations.
Filing for Chapter 12
Chapter 12 operates like Chapter 13 bankruptcy, in that a Chapter 12 debtor must propose a repayment plan soon after filing their bankruptcy petition. In the repayment plan, the debtor must set forth a plan to repay all required debts within three to five years.
For a repayment plan to be approved by the bankruptcy court, the debtor must pay all their disposable income to the bankruptcy trustee for disbursement to creditors. Disposable income is defined as a debtor’s income after paying their business expenses and reasonable personal expenses for themselves and their family. A repayment plan must also propose to pay creditors, at a minimum, as much money as they would receive in a Chapter 7 liquidation bankruptcy.
If a Chapter 12 debtor cannot afford to pay all their disposable income or cannot afford to pay unsecured creditors the amounts of money they would receive in Chapter 7 or secured creditors the value of the collateral securing the debt, the court will not approve the repayment plan. If the repayment plan is not approved or a Chapter 12 debtor cannot afford to make the required payments, the court may dismiss the Chapter 12 case, or the case may be converted into a Chapter 7 liquidation bankruptcy.
Contact a Council Bluffs Bankruptcy Lawyer
If you are facing financial difficulties with your farming or fishing business and want to know if Chapter 12 bankruptcy can help you resolve your issues and get a fresh start, contact the Council Bluffs Chapter 12 bankruptcy attorneys at Telpner Peterson Law Firm, LLP, today for an initial case evaluation. Don’t wait to discuss your legal rights and options with a knowledgeable bankruptcy attorney. Call us at 712-309-3738, fill out a contact form, or chat with us online now.