What is chapter 12 bankruptcy for family farmers?

Answers

Who benefits from chapter 12? Chapter 12 bankruptcy is designed for family farmers with “regular annual income.” [top]
What is a family farmer? Under the bankruptcy code, a family farmer is either (1) an individual or individual and spouse or (2) a corporation or partnership who operates a farming operation. [top]
What is a farming operation? A farming operation includes farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state. [top]
What are the criteria for an individual or individual and spouse to file chapter 12 under the bankruptcy code?

As of the date of filing the following criteria must be met:

  • The individual or husband and wife must be currently “engaged” in a farming operation;
  • Total farming debts (secured and unsecured) cannot exceed $3,237,000 (excluding debt for the home).
  • The family farmers debts must be at least 50% fixed in amount and related to the farming operation (excluding debt for the home).
  • More than 50% of the gross income for the past three tax years must have come from the farming operation. [top]
What are the criteria for a corporation or partnership to file chapter 12 under the bankruptcy code?

As of the date of filing the following criteria must be met:

  • More than 50% of the stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives.
  • The family or the family and relatives must be currently “engaged” in a farming operation.
  • The corporation or partnership must have received more than 80% of its gross income from the farming operation during the tax year immediately prior to filing bankruptcy.
  • More than 80% of the value of the corporation or partnership assets must be related to the farming operation.
  • Total farming debts (secured and unsecured) must be less than $3,237,000 (excluding debt for a dwelling owned by the corporation or partnership where a shareholder or principle partner lives as a principle residence).
  • The debt must be at least 50% fixed in amount and related to the farming operation (excluding debt for a dwelling owned by the corporation or partnership where a shareholder or principle partner lives as a principle residence).
  • Stock issued by the corporation may not be traded publicly. [top]
What happens to my farming operation if I file chapter 12 bankruptcy? Nothing, you remain in control and possession of all property and continue to operate the farming operation as before. [top]
How do I get a chapter 12 petition started? As with all chapters of bankruptcy debtors must receive credit counseling prior to filing and the certificate from the counseling company is filed with the bankruptcy petition. A chapter 12 case as with all other chapters of bankruptcy begins with filing a petition with the bankruptcy court. This can be done with or without the aid of a lawyer; however, please note bankruptcy law is complex and a lawyer who specializes in bankruptcy is a good advocate to have on your side. [top]
What kind of information will I need about my farming operation to file?

The farmer and spouse will need to gather information regarding:

  • creditors (amounts and reason for claim)
  • income (source and frequency)
  • assets (real property and equipment)
  • detailed list of monthly living and farming expenses (mortgage payment, food, utilities, taxes, fuel, feed, vet bills, fertilizer, etc) [top]
How much does it cost to file a chapter 12 bankruptcy? The filing fee for chapter 12 is $239 as of April 9, 2006. [top]
How much are attorney fees? Attorney fees vary based on the complexity of each situation. Our office offers free consultations where our attorneys can discuss your current financial situation with you. During that consultation, our attorneys will estimate the cost of representation for you. [top]
What happens after I file a chapter 12 bankruptcy?

Typically, the first benefit debtors realize after filing bankruptcy under any chapter is the “automatic stay.” The automatic stay stops most collection actions against the debtor or the debtors property, which simply means the calls from the creditors and the debt collection agencies stop. The automatic stay does not affect collection activities for child support or for certain taxes and court fines.

Within a mandatory 90 day time period, the debtor’s repayment plan must be filed and confirmed by the Court. The repayment plan provides the structure for the payments to creditors and will be confirmed by the court if the plan was proposed in good faith, allows for the proper distribution to each allowed unsecured creditor, the debtor will be able to make the plan payments, will comply with the plan, and the debtor’s domestic support obligations are current. [top]
How do the creditors get paid during my bankruptcy? Creditors must file a claim with the bankruptcy court within 90 days after the first date set for the meeting of creditors and any payments made to unsecured creditors and past due amounts to secured creditors are made through the bankruptcy estate. Secured creditor (home mortgage, car loan, equipment loan) payments are made each month as usual by the debtor. [top]
What benefits are there to filing chapter 12 over chapter 13? As long as the income requirements of chapter 12 can be met there are some unique provisions for family farmers not found in chapter 13. For example, the debtor may sell farmland, farm equipment or other farm assets free and clear of any lien and without creditor consent; however, the creditor’s interest in the proceeds from the sale is preserved. There are also special tax provisions for a chapter 12 filer that are not available under chapter 13. [top]
What happens after the plan payments have been paid under a chapter 12 bankruptcy? The debtor will receive a discharge which releases the debtor from most debts; however, the debtor must certify that all domestic support obligations are current. It is important to know that the creditors who were listed in the bankruptcy petition and paid either wholly or in part under the plan may not start or continue any legal actions to collect any debt discharged under the bankruptcy. Please note that bankruptcy discharge is complex and it is important to be aware of how your debts are discharged under the bankruptcy plan. [top]