Business Bankruptcy 101: Understanding Chapter 12 Bankruptcy
Chapter 12 bankruptcy offers a unique way to handle debts for those who are considered “family farmers” or “family fishermen.” It allows those who farm or fish for the majority of their income to develop a payment plan to repay all or part of their debts. Essentially, it will enable you to develop a three to five-year payment plan that your creditors are forced to use.
Chapter 12 bankruptcy is extremely helpful for those who are struggling with their debts as family farmers or fishermen. Although fishermen are included in Chapter 12, it is much more often used by family farmers.
Who is a Family Farmer?
Although you may think of a family farmer as an individual, the definition is actually broader than you might think. It includes:
- Individuals and their spouse
To qualify for Chapter 12, the focus is really on the type and amount of debts you have and how you generate your income. You must meet the following criteria if you are an individual:
- You are engaged in a farming or commercial fishing operation.
- Your total debts cannot be more than $4,153,150 for farming operations or $1,924,550 for commercial fishing operations.
- At least 50% of your fixed debts are related to farming or 80% if you are a family fisherman.
- Over 50% of the individual or couple’s income for the preceding tax year is from farming or fishing income.
If you are a corporation or partnership, you must meet some additional criteria as well, including:
- Over half of the outstanding stock or equity is owned by one family.
- The family must actually perform the farming or fishing operations.
- More than 80% of the value of the partnership or corporation has to be related to the farming or fishing operation.
- If the corporation owns stock, it cannot be publicly traded.
See all videos
How Does Chapter 12 Bankruptcy Work?
The bankruptcy process always starts by gathering information. You and your attorney will fill out a variety of forms that contain information on your income, debts, and assets. Then, you will use this information to develop your payment plan. Your payment plan is based on your total debt obligations to all of your creditors and your income. In most cases, if you cannot pay your debts over five years, then the remaining debts at the end of that time will be “discharged,” or forgiven.
Filing for bankruptcy automatically stops most collection efforts against you or your farming operation. It is very helpful if creditors are threatening to seize assets or stop services that are vital to keeping your farming or fishing operation going.
Getting the Help You Need
Are you considering bankruptcy as a farming or fishing operation? If so, Chapter 12 might be a good option for you. Contact our team today to learn more about your options: (248) 936-6390.