Chapter 12 bankruptcy was created specifically for family farming and fishing operations. As the pandemic raged in early 2020, the number of Chapter 12 filings actually went down because of protections implemented by the CARES Act. However, these protections are expiring. The number of filings is increasing again, and since restaurants are struggling, their suppliers are, too.
If 50% of your income as an individual or married couple came from your farming or fishing business in the last tax year and you’re facing large amounts of debt, Chapter 12 could be your solution. The seasonality of these businesses led to Chapter 12’s design, which sets up a reorganization plan that takes longer than Chapter 13 but less time than Chapter 11. It can help you avoid foreclosure and asset liquidation, too.
Who can file for Chapter 12 bankruptcy?
Not every fishing or farming business can qualify for Chapter 12. There are limits on the amount of debt and how much debt can come from a farming or fishing operation.
For example, a married couple or individual who earns their annual income with a commercial farming business must have no greater than $4,153,150 of debt to qualify. For fishermen, this number is $1,924,550. Additionally, 50% and 80% of debts must come from their business for farming and fishing, respectively.
Though these requirements and others must be met, there is no means test for Chapter 12 bankruptcy like there is for Chapters 7, 11, and 13. There are also no involuntary Chapter 12 cases like there are with Chapter 7, so you must initiate this type of bankruptcy yourself.
How does Chapter 12 bankruptcy work?
After you fill out the required paperwork and submit your filing request to the court, you must pay $275 (a $200 case filing fee and a $75 administrative fee). You can pay this in installments if you can prove to the court that you can’t afford to pay it all at once.
An automatic stay is placed after you file. This means that creditors can no longer bother you about the debt you owe and must conduct all communication through the court. Twenty-one to 35 days after you file, your court-appointed trustee will schedule a meeting of creditors. You, your creditors, and the trustee will be present to discuss your repayment plan.
Within 45 days of filing, you will have a confirmation hearing. A trustee appointed by the court will review all your documents and make sure the process goes smoothly. Unlike other forms of reorganization bankruptcy, your creditors do not need to approve your repayment plan when you file Chapter 12. They may object to parts of it, but the court has the final say.
What information do I need to file?
According to uscourts.gov, you will need:
- A list of all creditors and the amounts and nature of their claims;
- The source, amount, and frequency of the debtor’s income;
- A list of all of the debtor’s property; and
- A detailed list of the debtor’s monthly farming and living expenses, i.e., food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, etc.