What is Chapter 12 Bankruptcy?
Chapter 12 bankruptcy is another subset or type of bankruptcy. It is only available to family farmers or family fishermen. Designed as a response to difficulties suffered by farmers and fishermen in the 1980s, it is very similar to Chapter 13 but provides more flexibility in making periodic payments to take into account the seasonal nature of many farming or fishing operations. Similar to Chapter 13, the farmer or fisherman proposes a repayment plan that lasts 3 to 5 years. In comparison to Chapter 11, Chapter 12 is less expensive and less complex.
Who Qualifies for Chapter 12?
An individual or married couple with a farming or commercial fishing operation may file for Chapter 12. The debts limits of Chapter 12 are higher than Chapter 13. Specifically, as of 2018, the total debt must not exceed $4,153,150 for a farmer and $1,924,550 for a fisherman. For a family farmer, at least 50% of their debts must come from the farming operation. Likewise, with a family fisherman, 80% of the debts must be from the fishing operation. Finally, more than 50% of the gross income of the individual or the married couple must come from the farming or fishing operation for the prior tax year.
A corporation or partnership may also qualify as a family farmer or fisherman under certain circumstances.
Preparation and Filing
Similar to other bankruptcy chapters, a person that wishes to file for Chapter 12 must gather all of their financial information in order to fill out and complete the Voluntary Petition, the Schedules, and the Statement of Financial Affairs, among other documents. These documents must be filed with the clerk of the bankruptcy court in order to initiate the Chapter 12 case.
By filing a Chapter 12 case, the automatic stay goes into effect, like all other bankruptcy cases. The automatic stay prohibits creditors from taking certain collection actions without the permission of the bankruptcy court. In addition to protecting the debtor, the automatic stay in a Chapter 12 case also protects anyone who is also liable on any of the Chapter 12 debtor's consumer debts (those debts incurred for personal, family or household purposes rather than business debts associated with the farming or fishing operation.) For example, if John, a family farmer, files for Chapter 12, he is protected by the automatic stay.
He has a credit card, on which his brother is also liable, Under Chapter 12, his brother would also be protected by the automatic stay as to that debt even though John's brother did not file bankruptcy himself. A similar provision is also available in Chapter 13. This is often called the co-debtor stay.
Meeting of Creditors
A Chapter 12 trustee will hold a meeting of creditors after the filing of the bankruptcy petition, similar to other bankruptcy chapters. During the meeting, the trustee and creditors may ask you questions about your petition and financial affairs.
Chapter 12 Plan
Similar to a Chapter 13 case, the debtor must propose a Chapter 12 plan that pays off his or her debts over a period of 3 to 5 years. The plan must pay creditors within the requirements of the bankruptcy laws. A bankruptcy judge must also "confirm" the plan. After confirmation, the Chapter 12 debtor must make regular payments to the trustee, who will then make payments to creditors.
The Chapter 12 debtor does not receive a discharge until all of his or her plan payments have been made. However, there is an exception called the "hardship discharge," which permits a discharge despite having not made all plan payments. This is permitted if the debtor can prove that he or she failed to make all plan payments due to no fault of their own and the cause was not within his or her control. An example may be a severe illness.
Chapter 12 is remarkably similar to Chapter 13 in many respects, such as that it requires the proposal of a plan and payments over a 3 to 5 year period. However, Chapter 12 is geared towards fishermen and farmers, and accordingly, the government has deferred to their unique and difficult financial circumstances.
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