What Is Chapter 12?

Chapter 12 is a category of bankruptcy in the United States that applies specifically to farms and fisheries. It allows them to 澳洲幸运5官方开奖结果体彩网:reorganize their business while still maintaining ownership. Generally, debtors in such cases work with a 澳洲幸运5官方开奖结果体彩网:bankruptcy trustee and their creditors to devise a debt repayment program based on their income and financial obligations. The programs vary in duration between three and five years, after which remaining debts are 澳洲幸运5官方开奖结果体彩网:discharged. Both individually run family farms and fisheries as well as those owned by 澳洲幸运5官方开奖结果体彩网:corporations and 澳洲幸运5官方开奖结果体彩网:partnerships can qualify for this type of bankruptcy if they meet the requirements.

Who Is Eligible for Chapter 12 Bankruptcy?

Farmers and fisheries must fulfill a number of requirements in order to be eligible for Chapter 12 bankruptcy, and they dif෴fer in some respects depending on the type of business.

For example, in the case of farmers, at least 50% of debt that is fixed in amount must be related to their farming business, which means that debt involving other property, such as a personal residence, is not eligible to be counted. For fisheries, the minimum figure is 80%.

In addition, more than 50% of the gross income for an individual or married couple must have come from that business in the preceding tax year—or, in the case of farmers, in each of the two or three preceding years.

There are also prescribed debt limits for those seeking to file for Chapter 12 bankruptcy.𓆏 Those vary significantly according to the type of business, with fa💟rmers having much higher limits.

The Farmer Family Relief Act of 2019 increased debt limits for Chapter 12 bankruptcy for farmers from $3.3 million to $10 million. (The large increase—more than tripling the previous limit—was a response to ballooning U.S. farm debt at the time. That debt was the result of both prevailing economic realities and extreme weather conditions. A trade war with China, a large and important market for U.S. farmers, resulted in tariffs on American farm products. The frequency of hot days and hurricanes also adversely affected farmers' crops.)

Today the total debt limit for farmers filing Chapter 12 is $11,097,350. For fishermen, it is $2,268,550.

In addition to family farms and fisheries, corporations and partnerships engaged in these businesses can also be eligible for Chapter 12 bankruptcy if they meet the requirements.

How the Chapter 12 Bankruptcy Process Works

Chapter 12 bankruptcy follows the same basic process as other types of bankruptcies. It begins when a farmer or fisherman files a petition with the court. The petition will include information on the debtor's income and assets as well as on their various creditors and how much each one is owed. It may also include a proposed repayment plan. Filing the petition automatically stays, or stops, most collection actions against the debtor or their property, including their consumer debt.

Typically within the next three to five weeks, a trustee appointed by the bankruptcy court will convene a meeting between the debtor and their creditors to discuss the proposed repayment plan. That meeting will be followed by a court hearing where a judge will formally approve the plan.

Once the plan is in place, the debtor must begin making regular, agreed-upon payments to the trustee, which the trustee will then distribute among the creditors. This will typically go on for three to five years, after which any remaining debts will be discharged, so long as the debtor has held their end of the bargain.

By the time of the discharge, the debtor must have paid 澳洲幸运5官方开奖结果体彩网:secured creditors, such as mortgage lenders, at least as much money as the debtor put up as 澳洲幸运5官方开奖结果体彩网:collateral for the loan. (The payoff period may extend beyond three to five years if the original loan agreement was for longer.) 澳洲幸运5官方开奖结果体彩网:Unsecured creditors, however, will in most cases receive less than the total they were owed.

History of Chapter 12

Chapter 12 is a relatively recent innovation, added to U.S. bankruptcy law through the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986. Structured similarly to 澳洲幸运5官方开奖结果体彩网:Chapter 13 bankruptcy, Chapter 12 was designed to help farms and fisheries through the baꦍnk🌞ruptcy process.

Lawmakers originally introduced the concept in the mid-1980s as a temporary measure in response to a debt crisis in the agricultural sector. As a result of downward-spiraling commodity prices, industry debt had risen to approximately $216 billion by the end of 1983. The 1986 act was set to expire in 1993, but it was extended until it eventually became a permanent law in 2005.

The Bottom Line

Chapter 12 bankruptcy was devised to help farms and fisheries pay off their debts through a process of reorganization rather than liquidation. It recognizes the special challenges that 𓃲these types of busine𒁏sses face and is usually the best bankruptcy option for those that qualify.