Is Bankruptcy Right for You?

If you are a North Carolina family farmer, and if you’re overwhelmed by your business debts, bankruptcy may be considered a last resort. However, if you have no choice but to consider bankruptcy, you must have the advice and guidance of a North Carolina bankruptcy lawyer.

Our nation’s founders believed debtors should have a chance for a fresh start, so the United States Constitution authorizes Congress to create bankruptcy laws. Bankruptcy releases debtors from liability for certain debts and prevents creditors from collecting those debts in the future.

What are a farmer’s options for bankruptcy? What happens when a farmer files for bankruptcy? When should a farmer contact a North Carolina bankruptcy attorney? Keep reading this brief discussion of family farmers and bankruptcy in North Carolina for the answers you may need.

Are There Different Types of Bankruptcy?

The U.S. Code is the official compilation of the federal laws of the United States. The Code includes 53 sections or “titles.” Title 11, the Bankruptcy Code, establishes six types of bankruptcies. These different types of bankruptcies are referred to by the Title 11 chapters that explain them:

  1. Chapter 7 – Liquidation
  2. Chapter 9 – Municipalities
  3. Chapter 11 – Business Reorganization
  4. Chapter 12 – Family Farmer Reorganization
  5. Chapter 13 – Individuals with Regular Income
  6. Chapter 15 – Cross-Border Insolvency

Although Chapter 12 is intended for family farmers, farmers may also file for bankruptcy under Chapters 7, 11, or 13. Specifically, Chapter 12 allows family farmers who have “regular annual income” to submit and follow a proposal to pay off all or a portion of their debts.

Why Should a Farmer Consider a Bankruptcy Under Chapter 12?

Prior to the 1980s, family farmers had no special protection under bankruptcy laws. If they filed for bankruptcy, they filed under Chapter 7, 11, or 13. Each type of bankruptcy has benefits and disadvantages. However, farmers may now choose a Chapter 12 bankruptcy because:

  1. Chapter 7 bankruptcies are liquidation bankruptcies intended for businesspersons who are getting out of business.
  2. Chapter 11 bankruptcies are exceedingly expensive and are intended mainly for big corporations.
  3. Chapter 13 bankruptcies are intended for individuals with relatively modest debts, which typically isn’t the situation for a family farmer facing bankruptcy.

Who Qualifies for Bankruptcy Under Chapter 12?

Bankruptcies under Chapter 12 are less complicated, more streamlined, and usually less expensive than a Chapter 7, 11, or 13 bankruptcy. Farmers in North Carolina who file for bankruptcy under Chapter 12 must meet the following requirements:

  1. Over fifty percent of a married couple’s gross income in the tax year immediately prior to the bankruptcy filing had to be derived from their farm business.
  2. Additionally, more than fifty percent of a married couple’s fixed debt must be debt that has been incurred by the farming business. Debts on the property are not considered.
  3. Only family farmers who have “regular annual income” qualify for a Chapter 12 bankruptcy. This ensures the farmer has income that will allow for debt payments.

What is Required by the Court?

The paperwork and disclosures that are required for a farmer bankruptcy under Chapter 12 include:

  1. a list of the farmer’s creditors, how much is owed, and the reason for each of the debts
  2. the source, frequency, and amount of the farmer’s income
  3. a comprehensive inventory of the farm property
  4. a comprehensive listing of the farmer’s monthly expenses

Married couples who file for a Chapter 12 bankruptcy must disclose these details for both spouses if they submit a joint bankruptcy petition, separate petitions, or even when only one of the spouses is filing for bankruptcy.

If one spouse only is filing, the expenditures and income of the other spouse must also be listed in order for the court, the bankruptcy trustee, and the farmer’s creditors to consider the family’s overall financial circumstances.

What Happens After a Bankruptcy Filing?

Don’t try to handle filing for bankruptcy by yourself. Any mistake that you make may cost you dearly or lead to your petition being denied. Let a North Carolina bankruptcy attorney file your petition with the bankruptcy court on your behalf.

After the court accepts your bankruptcy petition, a trustee is designated to oversee your bankruptcy, and the court orders an automatic stay that immediately stops debt lawsuits, foreclosures, repossessions, wage garnishments, and all other creditor collection activities.

Bankruptcies under Chapters 7, 11, 12, and 13 all provide for an automatic stay. The length of the automatic stay varies by the type of bankruptcy. Considerable legal penalties may be imposed on a creditor who violates an automatic stay.

What Does a Bankruptcy Under Chapter 12 Entail?

In most Chapter 12 bankruptcies, family farmers must submit – within ninety days of filing the bankruptcy petition – a proposal for paying their debts.

The proposal should provide for fixed, regular payments made to the bankruptcy trustee, who then makes payments to creditors based on the plan’s provisions.

After the payment proposal has been submitted, the bankruptcy court holds a “confirmation hearing” where it decides if the plan is practical and if it satisfies Bankruptcy Code requirements. If the plan is confirmed, the trustee is authorized to distribute the funds to creditors.

How Can You Learn More or Begin the Bankruptcy Process?

Speaking frankly, bankruptcy isn’t for everyone. If you are a farmer in North Carolina, discuss your alternatives and options with a North Carolina bankruptcy lawyer before you take any legal steps to resolve your debts.

A bankruptcy under Chapter 12 takes three to five years. Chapter 12 lets you pay your debts and reorganize your farm business so that it may continue to operate. While the bankruptcy is pending, a creditor must have the bankruptcy court’s consent to take any action against you.

This cannot be emphasized strongly enough: Bankruptcy isn’t for everyone with debts, and you probably have other options. A bankruptcy can have severely negative consequences for your credit and your long-term finances.

For Reliable Legal Advice and Effective Representation

Before you file for bankruptcy, discuss those consequences with a bankruptcy attorney. Schedule your first legal consultation by calling Gillespie & Murphy at 252-636-2225. A bankruptcy attorney will discuss your options and offer personalized legal advice without cost or obligation.

You cannot make a decision about bankruptcy in haste. Instead, make an informed choice with the help of an experienced bankruptcy attorney. If you are a farmer in North Carolina and your debts are overwhelming you, call Gillespie & Murphy now.