What should I know about Chapter 12 bankruptcy for farmers and commercial fishers?

Contents

• What is Chapter 12 bankruptcy?
• What are my rights in a Chapter 12 bankruptcy?
• What are my responsibilities under Chapter 12 bankruptcy?

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What is Chapter 12 bankruptcy?

Chapter 12 bankruptcy is designed to provide debt relief for: 

• family farmers or 

• family commercial fishers with a regular annual income. 

In Chapter 12, debtors propose a repayment plan for their creditors. Debtors make payments to creditors over three to five years.

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What are my rights in a Chapter 12 bankruptcy?

You have the right to file for Chapter 12 bankruptcy if you are a farmer or commercial fisher who qualifies for relief. To qualify:

1. You, or you and your spouse, must have a farming or commercial fishing operation.

2. The total debts (secured and unsecured) of your operation must not exceed: 

   1. $10 million (if a farming operation) or 

   2. $1,924,550 (if a commercial fishing operation).

3. A percentage of the total debts must be related to the farming or commercial fishing operation.

   1. If you are a family farmer, at least 50%, and

   2. If you are a family commercial fisher at least 80%,

4. More than 50% of your gross income must have come from the farming or commercial fishing operation.

 

To file you must also show that you have a regular annual income that will permit you to make payments under a Chapter 12 plan. However, Chapter 12 does make allowances if you have a seasonal income.
 

If your repayment plan is accepted, you have the right to keep your property as long as repayments are made. However, you may not take on any additional debt without the permission of the trustee in your case.

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What are my responsibilities under Chapter 12 bankruptcy?

You are responsible for following the rules and procedures of the bankruptcy court during the proceedings. You are strongly encouraged to consult a bankruptcy attorney. The court will reject your bankruptcy petition if you do not follow the rules and file all of the required paperwork. This is true whether you have an attorney or not.
 

You cannot file under Chapter 12 if, within 180 days, you had another bankruptcy petition dismissed for : 

• failure to appear or 

• failure to comply with orders. 

 

You are responsible for attending credit counseling within 180 days before filing for bankruptcy.

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Contents

• How can I file for Chapter 12?
• What happens after I file for Chapter 12?
• What are the advantages of filing for Chapter 12?

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How can I file for Chapter 12?

Filing for bankruptcy is a complicated process. You should talk to an attorney before filing. If a court dismisses your case because you did not file correctly, you may be banned from filing again for a period of time. The general steps to filing a Chapter 12 bankruptcy are:

1. Within 180 days before filing for bankruptcy, you must participate in credit counseling with an approved credit counseling agency. You must file a copy of your certificate of credit counseling and a copy of any debt repayment plan with your petition for bankruptcy.

2. File a petition with the bankruptcy court where you live. You may file individually or with your spouse. There are many forms must fill out. You must provide information about your financial situation, including:

   1. A list of all creditors and the amount and nature of their claims;

   2. The source, amount, and frequency of your income;

   3. A list of all of your property; and

   4. A detailed list of your monthly farming and living expenses, i.e., food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, etc.

3. Unless the court grants an extension, you must file a repayment plan with your petition or within 90 days after the petition is filed. The plan proposes a fixed amount that you will pay to a trustee on a regular basis to repay your creditors. Under Chapter 12, you might propose a seasonal repayment schedule. Your plan must be approved by the court.

4. You must pay the filing fees ($200 case filing fee and $75 administrative fee). You may apply to pay these fees in installments, or if you are unable to pay, the court may waive the fees entirely.

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What happens after I file for Chapter 12?

• Automatic Stay. Filing a petition will automatically stay most collection actions. The stay is like a protective shield that goes up around you at the moment the bankruptcy case is filed. While the stay is in place, creditors are not allowed to attempt to collect against you or take your property unless they first get permission from the bankruptcy court. If you’ve been sued or garnished, this means that any action being taken against you has to stop, unless the creditor gets permission from the bankruptcy court (by filing what is called a “motion for relief from the stay”) to go forward. 

• Trustee Appointed. After your petition is filed, you will be assigned a case trustee to evaluate your case, collects payments from you and distribute them to your creditors.

• Meeting of Creditors. Between 21 and 35 days after you file your petition, your case trustee will hold a meeting of your creditors. During this meeting, you will be put under oath and the trustee and any creditors who attend can ask questions about your proposed plan to repay the debt. You must attend this meeting.

• Hearing on Repayment Plan. No more than 45 days after the creditor meeting, the court will hold a confirmation hearing to decide whether to approve or reject your plan. If the court objects your repayment plan, you can file a modified plan.

• Continue Payments for Three to Five Years. After the court approves the plan, you must make regular payments to the trustee. If you fail to make payments, the court may dismiss the case or convert it to a Chapter 7 liquidation.  The court might also dismiss your case if a creditor can show you committed fraud in connection with the case.

• Discharge. If you complete all of your payments under your repayment plan, you will generally receive a discharge of allowable debts. This means that even if you have not paid your debts in full, you will no longer owe those creditors money.

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What are the advantages of filing for Chapter 12?

For many family farmers and commercial fishers, filing for Chapter 12 makes more sense than Chapter 7 or Chapter 13. There are many benefits to Chapter 12, including:

• You can propose a repayment plan with seasonal payments.

• You can cramdown most secured debt. With a cramdown, you can pay the lender only the value of the property, rather than the full loan balance, through the payment plan. Under a cramdown, you can also sometimes reduce the interest rate to make the remaining balance more affordable. For example, let’s say you purchased a tractor 3 years ago, you owe $20,000 on the note, there is an interest rate of 28%, and the tractor is worth $10,000. A cramdown would allow you to pay only the $10,000 that the tractor is worth, rather than the entire loan balance, in your payment plan, and you could reduce the interest rate from 28% to somewhere closer to the single digits. 

• You can sell or lease property of business without court approval.

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