Chapter 12 bankruptcy is designed specifically for family farmers and fishermen. It is similar to Chapter 11 and Chapter 13, but more streamlined. It is often a faster process, and the regulations are simplified for ease of filing (relative to other corporate bankruptcies).
Who Is It For?
According to the bankruptcy code, Chapter 12 can be filed by either an individual/individual and their spouse or a partnership/corporation. In either case, the farmer or fisherman must have an annual income, even if it is seasonal. The code sets requirements for the percentage of income and debt that are required to be from the fishing or farming enterprise, and limits on the total amount of debt. In the case of partnerships and corporations, there are additional requirements regarding stock ownership. The majority ownership must still be controlled by one family.
What Are The Benefits?
In addition to the simplicity of filing, Chapter 12 provides some other unique benefits to family farming and fishing enterprises. One of these is the ability to “cram down” debt. What this means is that in the case of a secured loan, the balance may be reduced to the current value of the property acting as collateral. For instance, a farmer could have taken out loans to purchase land, using the land as collateral, when the economy was booming and the land was relatively expensive. Economic downturns then may have reduced the value of land significantly. In the bankruptcy process, the amount of debt would then be reduced to this new, lower value.
Automatic stays, which are common to all bankruptcies, also have an additional effect in Chapter 12 filings. Because of the “family” nature of the enterprises, creditors are not only prevented from seeking collection from the debtor, but also from other debtors liable on debt with them.
What Are The Limitations?
Chapter 12 is only available to commercial fishing and farming operations. Additionally, the amount of debt is limited to just over 4 million dollars for farmers and just over 1.8 million dollars for fishing enterprises. Some kinds of debt are not able to be reduced or discharged, as with other types of bankruptcy filing. Domestic debts, such as child support and alimony are required to be paid 100% except in rare circumstances.
How Does It Work?
Chapter 12 begins with a voluntary petition (the debtor files the petition), and then a trustee is appointed to review documents and oversee the process. Within 90 days of filing, a plan for repayment must be submitted. The plan must span from three to five years unless the court has given special permission for an extension. Creditors must receive at least the amount of money they would have received had the debtor filed for Chapter 7 bankruptcy. The debtor’s disposable income is given to the trustee where it is then distributed to creditors. Usually, the farming or fishing enterprise continues operation throughout the bankruptcy process. After the payments have been made and the set time period has passed, the debts are discharged.
Chapter 12 is a specialized, but highly valuable, form of bankruptcy. A lawyer experienced in this process can help determine whether Chapter 12 is the best way to file depending on your particular circumstance.
Contact us online or call 870-972-1150 to start the process. Set up a free, no-obligation consultation appointment with an experienced Arkansas bankruptcy lawyer.