Under the federal U.S. Bankruptcy Code, a petition to file Chapter 12 bankruptcy is specifically reserved for persons and/or entities who meet the definition of a “family farmer” or “family fisherman” under this statute. They must also receive a “regular annual income” for performing work related to either of these occupations.
Family farmers or family fisherman who are seeking relief from such debts will also be required to devise, propose, and execute a repayment plan that will repay all or at least some of their debts. Similar to the requirements of a Chapter 13 bankruptcy, a person or entity who files for Chapter 12 bankruptcy must create a plan that can be paid off in three to five years. If the debtor needs additional time, they must obtain approval from the bankruptcy court.
It is important to note that Chapter 12 bankruptcy is a very narrow type of bankruptcy proceeding. Thus, not everyone who applies may qualify for relief under a Chapter 12 bankruptcy petition. Again, a debtor will need to meet certain conditions before they can file as well as will need to draft a repayment plan that complies with the federal statute.
Therefore, if you plan on filing for Chapter 12 bankruptcy, you should strongly consider hiring a local bankruptcy lawyer for further legal advice first. A lawyer may be able to save you the hassle of applying if they can immediately tell you that you do not meet the definition of a family farmer or fisherman, or do not satisfy the annual income requirement. Lawyers can also recommend other chapters of bankruptcy that may be better suited to your financial situation.
Who is Considered a Fisherman or Farmer?
As discussed above, only persons or entities that meet the definition of a family farmer or fisherman and have a “regular annual income” may file a request for relief under Chapter 12 bankruptcy. According to the section of the U.S. Bankruptcy Code on Chapter 12 bankruptcy, only the following categories of persons or entities may fit those definitions:
- An individual;
- An individual and their spouse;
- A corporation; or
- A partnership.
For persons who are applying as either an individual or as an individual with their spouse, they must also meet the following four conditions:
- The individual or the spouses must partake in significant activities associated with a farming or commercial fishing operation;
- The total amount of both secured and unsecured debts of those filing must not exceed:
- $4,153,150 if they are engaged in a farming operation, or
- $1,924,550 if they are engaged in a commercial fishing operation;
- Depending on the type of operation that an individual or an individual and their spouse is involved with, the total percentage of debts must meet a certain threshold in connection with their operations. For example:
- A family farmer must have debts that amount to at least 50% of their total balance of debts in relation to a farming operation, and
- A family fisherman must have debts that amount to at least 80% of their total balance of debts in relation to a commercial fishing operation; and
- Depending on the parties filing the petition, they must satisfy specified income levels. For instance:
- More than 50% of either the individual or the individual and spouse’s gross income of the prior tax year must have been generated from a farming or commercial fishing operation; or
- If those who are petitioning are family farmers, they may also be eligible if more than 50% of their gross income was generated by a farming operation and stemmed from either the previous tax year, the tax year from two years prior, or the tax year from three years prior. Again, this only applies to those engaged in family farming operations.
On the other hand, if the petitioner is a corporation or a partnership, then they will need to meet a different set of criteria to be eligible to file for Chapter 12 bankruptcy:
- A family or a family and close relatives must be the primary operators of the farming or commercial fishing activities;
- A family or a family and close relatives must own more than fifty percent of the outstanding equity or stock in the farming or commercial fishing operation;
- More than eighty percent of the total value of the partnership or corporation must be connected to the farming or commercial fishing operation;
- If a corporation elects to issue stock, the stock can never be publicly traded;
- The total amount of debt that the corporation or partnership has must not exceed:
- $4,153,150 if it is a farming operation, or
- $1,924,550 if it is a commercial fishing operation; and
- The corporation or partnership’s total amount of debt must consist of either at least fifty percent related to a farming operation or eighty percent related to a commercial fishing operation.
As is evident from the above conditions, it is generally much harder to qualify for Chapter 12 bankruptcy if the petitioner is a corporation or a partnership, as opposed to an individual or an individual and their spouse.
Filing a Chapter 12
Once the petitioners establish that they meet the definition of a family farmer or family fisherman and satisfy the income requirements, then they will be eligible to file a Chapter 12 bankruptcy petition with the proper bankruptcy court. This may either be a bankruptcy court where an individual resides or the place in which a partnership or corporation has its principal place of business or assets.
Along with the Chapter 12 bankruptcy petition, the petitioner will also need to file the following documents:
- A schedule of all assets and debts;
- A schedule of current income sources as well as expenditures;
- A schedule of current leases and any executory contracts; and
- Various other financial statements that demonstrate the petitioner’s current financial status (e.g., a list of all the petitioner’s property, living and business expenses, etc.).
In addition, the petitioner will also need to pay for the cost of filing the documents in the above list. This amount will vary based on the local rules of the court where the case is filed.
What Happens After Filing?
After all of the legal paperwork has been filed and the filing costs have been paid, the court or the U.S. trustee will appoint a bankruptcy trustee to oversee the Chapter 12 bankruptcy case. The clerk of the bankruptcy court will then notify the petitioner’s creditors about the case and a date will be set for the mandatory 341 meeting of the creditors.
At the 341 meeting, the bankruptcy trustee and the creditors will place the petitioner under oath to ask them questions about their debts. The petitioner will be required to attend this meeting and answer any questions honestly, lest they perjure themselves. This meeting is also where the petitioner will propose the terms of their Chapter 12 repayment plan.
Once the 341 meeting has concluded, a hearing will be scheduled wherein the bankruptcy court will either affirm or deny the petitioner’s Chapter 12 repayment plan. This repayment plan must be filed within 90 days after the filing of the Chapter 12 bankruptcy petition.
As discussed above, the petitioner will have around three to five years to pay off their debts under the new repayment plan. If they believe they will not be able to do so, then they must ask the court for an extension.
Lastly, the petitioner will receive a discharge from the court after they have completed all of their payments with one exception: if the petitioner can show substantial hardship, then the court may discharge the remaining debt in accordance with a Chapter 12 hardship discharge.
Can I File For Other Kinds of Bankruptcy?
There are some instances in which a petitioner may be able to convert their Chapter 12 bankruptcy filing to a different chapter of bankruptcy known as Chapter 7 bankruptcy. This often happens when a court denies the petitioner’s Chapter 12 repayment plan. If the court permits the petitioner to convert their case, then they will be required to follow the rules of Chapter 7 bankruptcy, rather than those that are provided for Chapter 12.
In addition, the petitioner may want to consider filing for Chapter 13 bankruptcy, as opposed to Chapter 12 bankruptcy, before they file their initial petition. A Chapter 12 bankruptcy is specifically tailored to farmers and fisherman. However, those who are seeking relief from smaller amounts of debt than the standard found amongst family farmers and fisherman may be able to gain an advantage by filing for Chapter 13 if they can afford it.
If you are experiencing issues or need assistance with filing for Chapter 12 bankruptcy, then it may be in your best interest to hire a local bankruptcy lawyer as soon as possible. An experienced bankruptcy lawyer will be able to help you review and file the necessary legal documents with the bankruptcy court in your jurisdiction. Your lawyer may also recommend a different chapter of bankruptcy if they find you do not meet the eligibility requirements.
However, if you do qualify and your petition for Chapter 12 bankruptcy is granted by the court, then your lawyer will also be able to help you draft a Chapter 12 repayment plan. In addition, your lawyer can make sure that your debts are paid in full by the set date, and if not, can assist you in filing a request for an extension of your repayment plan before it expires.
Finally, if there are issues with your Chapter 12 bankruptcy case (e.g., if a debt was already paid, but still appears on your record), your lawyer can assist you in getting those issues resolved in an efficient manner. Your lawyer will also be able to provide legal representation in court should you need to attend any hearings related to your Chapter 12 bankruptcy case.