A Chapter 12 Bankruptcy is exclusively for farmers and fishermen. Chapter 12 of the United States Bankruptcy Code is designed for the unique businesses of farms and fishing enterprises. Chapter 12, like Chapter 11 bankruptcy, allows a farming or fishing business to reorganize its debts to continue operating.
When choosing a bankruptcy for your farm or fishing business, it is important to find counsel who understands the unique challenges of those businesses, including the annual uncertainty of commodity prices, fertilizer, fuel and other expenses which often vary by large margins and require you to annually adjust financing needs and production options. An experienced, knowledgeable bankruptcy lawyer will assist you to reorganize your debt by proposing a plan to satisfy your creditors while you operate your business, and assist you to stay in business during the entire term of your bankruptcy.
If you are a farmer or fisherman seriously considering Chapter 12 bankruptcy, consult with a New Bern, Jacksonville, Greenville and Wilmington bankruptcy law firm that is knowledgeable and experienced with the complex aspects of Chapter 12 bankruptcy. You will work with your bankruptcy lawyer to thoroughly analyze your debts and propose a feasible repayment plan to your creditors.
Exactly What is Chapter 12 Bankruptcy?
Chapter 12 of the Bankruptcy Code was enacted in 1986 in response to several years of economic conditions that plagued agriculture. Low commodity prices, high input costs, high equipment costs and fewer financing sources made it increasingly difficult for fishermen and farmers to operate.
Chapter 12 bankruptcy was modeled after Chapter 13 bankruptcy, which enabled individuals to repay some of their debt over a five year period through a Chapter 13 Trustee without requiring creditor approval. However, Chapter 12 included many provisions that are the same or similar to provisions in Chapter 11 of the United States Bankruptcy Code to specifically assist family farmers and fishermen drowning in debt.
The advantages over Chapter 11 Bankruptcy include that creditor approval is not necessary. A Chapter 12 Trustee is appointed to oversee the case and the Chapter 12 Trustee often works with the farmer or fisherman and their attorney to obtain court approval for the bankruptcy plan so that the farmer or fisherman can stay in business. The filing fees for Chapter 12 are also less than other chapters of bankruptcy. In addition, a Chapter 12 Bankruptcy is limited to a three to five year term so that the farming or fishing business can eliminate debt and exit bankruptcy and maintain or eventually grow the business without old, burdensome debt or the threat of creditors seizing assets. Filing Chapter 12 bankruptcy provides you with a quick and predictable process to reorganize debt to keep your assets from being liquidated or being foreclosed.
What Are Some Direct Benefits of Chapter 12 Bankruptcy?
First, Chapter 12 Bankruptcy, like all bankruptcies, stops creditor actions to seize equipment or other collateral, foreclose on real property, or sue you or continue a suit to collect an outstanding debt. The “automatic stay” of Section 362 of the Bankruptcy Code stops all creditor actions immediately upon the filing of the bankruptcy.
Second, as a farmer or fisherman, you can propose a “cram down” on your secured debt in your repayment plan. “Cramdown” is commonly defined as the ability to pay the present market value of real or personal property rather than the entire debt during the bankruptcy process. For example, if you have an equipment loan for $150,000.00, but the collateral for the loan is only worth $100,000.00, you can propose terms to only pay $100,000.00. The remaining debt is unsecured and you may only pay a small portion of the unsecured debt back. The remainder is “discharged” or forgiven.
Third, you and your bankruptcy lawyer will organize and propose a repayment plan to make payments to creditors over three to five years on different terms, including changing the due date of loans, changing the interest rate or changing the payment amount. Changing the terms of your loan documents with each creditor is also called a “cramdown,” but you are effectively refinancing your debt on better terms.
Fourth, and importantly, you can use your property, sell it, lease it, or otherwise deal with your property in the ordinary course of business. Often, selling your property requires court approval, but most uses of your property do not require approval from the court.
What Do I Need to Be Eligible for Chapter 12 Bankruptcy?
To file a Chapter 12 Bankruptcy, you must meet the following criteria, among others:
- You must be engaged in farming or commercial fishing.
- You must derive most of your income from your farming or fishing operation for the preceding tax year.
- Total debts of your farm or fishing operation may not exceed a certain limit, which increases periodically.
- Most of your debts (exclusive of debt for your home) must be related to your farming operation or your commercial fishing operation.
I Do Have to File Chapter 12 Bankruptcy; How Should I Proceed?
Chapter 12 bankruptcy was specifically designed to help farmers and fishermen experiencing difficult financial times. Consult with a North Carolina law firm knowledgeable about Chapter 12 Bankruptcy. Your lawyer will diligently sift through the details of your case and assist you to plan the best path for you to succeed.