A chapter 12 case may only be filed by a family farmer or family fisherman with regular annual income. To qualify for chapter 12, an individual, individual and spouse, or partnership or corporation seeking to qualify as a chapter 12 debtor must meet the following factors:
- be engaged in a farming operation;
- have not more than the aggregate debt limit, which was $11,097,350, as of 4/1/22;
- have at least 50% of the debtor’s debt be from such farming operation; and
- have received more than 50% of the debtor’s gross income from such farming operation for the taxable year preceding the taxable year in which the chapter 12 case is filed.
Upon the filing of a chapter 12 case, an automatic stay as to debtors goes into effect as in other chapters of bankruptcy, which stops most collection against the debtor and the debtor’s property. The automatic stay also protect co-debtors as to consumer debt of debtors unless the court authorizes otherwise.
A chapter 12 trustee is appointed in chapter 12 cases to oversee the case for compliance with the bankruptcy laws, and collect and distribute the debtor’s plan payments in accordance with the chapter 12 plan the debtor is required to file. The chapter 12 debtor generally remains in possession and control of the farming or fishing operations.
A chapter 12 debtor has the burden of operating his estate and providing financial information similar to that of a chapter 11 debtor. For example, the debtor needs to provide accurate and detailed financial records and file monthly reports during the pendency of the chapter 12 case. The debtor should be prepared to provide to their counsel past tax returns, itemized farm and personal budgets and cash flow projections. The debtor must also pay all required taxes, wages and expenses of the administration of a chapter 12 case and file all necessary returns. The debtor must obtain court approval for use or sale of property outside of the ordinary course of business or obtaining credit.
A chapter 12 plan must be filed by the debtor within 90 days after the case is filed. The plan usually lasts 3 to 5 years and must provide for the payments from income sufficient to make all required payments under the plan. Similar to chapter 13, the plan may be confirmed if the statutory requirements for approval or met, without need of a creditor vote. Unlike chapter 13, an undersecured home mortgage (if the debt securing the home arose from the farm operation) is subject to being restructured by bifurcating the debt in secured and unsecured portions and providing for payment accordingly in a plan. The provisions of a confirmed chapter 12 plan bind the debtor and creditor.
There are special tax provisions in chapter 12 which may be advantageous to chapter 12 debtors. Debts discharged in a chapter 12 case will not have to be treated as income. Taxes generated from sales of property used in a farming operation can be treated as general unsecured claims subject to discharge.
The requirements of chapter 12 and how they may fit with your situation, as with other chapters of bankruptcy, are complex and specialized. If you are considering seeking bankruptcy relief, you should consult with an attorney as to your options.
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