Chapter-12 Bankruptcy Lawyer

What is Chapter-12  Bankruptcy?

Chapter 12 bankruptcy is a relatively new addition to bankruptcy laws. It allows “family farmers” and “family fisherman” to restructure their finances and avoid liquidation or foreclosure. It’s very similar to Chapter 13 bankruptcy, but provides additional benefits to debtors.

 

For much of our nation’s history, there were few bankruptcy laws specifically designed to protect family farmers and fishermen. Congress enacted Chapter 12 bankruptcy in 1986 as an emergency response to the tightening of agricultural credit and the pressure that it placed on family farmers and fishermen. Chapter 12’s provisions were temporary for many years and did not become permanent until 2005.

Eligibility for Chapter-12 Bankruptcy:

The Bankruptcy Code provides that only a family farmer or family fisherman with “regular annual income” may file a petition for relief under chapter 12. 11 U.S.C. §§ 101(18), 101(19A), 109(f). The purpose of this requirement is to ensure that the debtor’s annual income is sufficiently stable and regular to permit the debtor to make payments under a chapter 12 plan. But chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature. Relief under chapter 12 is voluntary, and only the debtor may file a petition under the chapter.

 

Under the Bankruptcy Code, “family farmers” and “family fishermen” fall into two categories: (1) an individual or individual and spouse  (2) a corporation or partnership. Farmers or fishermen falling into the first category must meet each of the following four criteria as of the date the petition is filed in order to qualify for relief under chapter 12:

  • The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
  • The total debts (secured and unsecured) of the operation must not exceed $4,153,150 (if a farming operation) or $1,924,550 (if a commercial fishing operation).
  • If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
  • More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.

Lawyer explains Chapter-12 Bankruptcy:

What is Chapter-12 Bankruptcy?

The Chapter-12 Discharge:

The debtor will receive a discharge after completing all payments under the chapter 12 plan as long as the debtor certifies (if applicable) that all domestic support obligations that came due before making such certification have been paid. The discharge has the effect of releasing the debtor from all debts provided for by the plan allowed under section 503 or disallowed under section 502, with limited exceptions. Those creditors who were provided for in full or in part under the plan may no longer initiate or continue any legal or other action against the debtor to collect the discharged obligations.

Certain categories of debts are not discharged in chapter 12 proceedings. 11 U.S.C. § 1228(a). Those categories include debts for alimony and child support; money obtained through filing false financial statements; debts for willful and malicious injury to person or property; debts for death or personal injury caused by the debtor’s operation of a motor vehicle while the debtor was intoxicated; and debts from fraud or defalcation while acting in a fiduciary capacity, embezzlement or larceny. The bankruptcy law regarding the scope of a chapter 12 discharge is complex, however, and debtors should consult competent legal counsel in this regard prior to filing. Those debts that will not be discharged should be paid in full under a plan. With respect to secured obligations, those debts may be paid beyond the end of the plan payment period and, accordingly, are not discharged.

Filing The Petition:

This type of bankruptcy case begins by filing a petition with the bankruptcy court serving the area where the individual lives or where the corporation or partnership debtor has its principal place of business or principal assets. Unless the court orders otherwise, the debtor also shall file with the court:

  • Schedules of assets and liabilities,
  • A schedule of current income and expenditures,
  • A schedule of executory contracts and unexpired leas es, and
  • A statement of financial affairs.

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