What is Chapter 12 Bankruptcy?
Chapter 12 bankruptcy was first enacted in 1986 and made permanent in 2005 to protect family farmers and fishermen. Chapter 12 is less complicated and less expensive than Chapter 11, which is better suited for corporate reorganizations.
Who Can File Under Chapter 12?
Farmers and fishermen must have "regular annual income" to file under Chapter 12. The debtor's income must be sufficiently stable to ensure he can make payments under the Chapter 12 plan. Regular annual income may be seasonal in nature.
Individual debtors must meet each of the following criteria:
- Be engaged in farming operation or commercial fishing operation;
- Have debt totals (secured and unsecured) of not more than $4,153,150 for farmers, or $1,924,550 for fisherman.
- Owe 50% of their total debts on account of farming operations or 80% of their total debts on account of commercial fishing operations.
- Have made more than 50% of their gross income from farming or commercial fishing operations.
Partnerships and corporations cannot file bankruptcy under Chapter 12 unless a single family owns more than 50% of their stock or equity interests. There are other requirements for partnerships and corporations, but they are outside the scope of this article.
The Chapter 12 Process
Below is a general overview of the Chapter 12 bankruptcy process.
- Debtor files voluntary petition for relief. The debtor must also file: Schedules of assets and liabilities; Schedule of current income and expenditures; Schedule of executory contracts and unexpired leases; and a statement of financial affairs.
- Debtor pays a $200 case filing fee and a $75 administrative fee at the time of filing, unless he receives the court’s permission to pay in installments.
- Bankruptcy administrator is appointed. The bankruptcy administrator helps to oversee some interactions between the debtor and creditors, and sometimes acts as a sort of opposing party in the case, objecting when he or she believes that the debtor or a creditor is failing to meet responsibilities under the Bankruptcy Code or court rules. (North Carolina and Alabama are the only two states where bankruptcy courts appoint bankruptcy administrators; in other states, a trustee serves similar functions.)
- The administrator holds a meeting of the creditors, also called a "341 meeting", for Section 341 of the Bankruptcy Code. The debtor must also attend and answer creditors' questions under oath.
- Debtor files a repayment plan within 90 days of the initial bankruptcy petition (or longer if the court grants an extension).
- Bankruptcy administrator reviews the proposed plan and other documents and makes recommendations to the bankruptcy court.
- Hearing on confirmation is held within 45 days of filing the plan.
- Case remains open until the debtor makes all required payments to the trustee.
- Once payments are made, the court grants the debtor a discharge and the case is closed. Creditors are legally barred from attempting to collect discharged debts.
The Repayment Plan
Chapter 12 debtors must propose a repayment plan within 90 days of filing for bankruptcy. The repayment plan outlines how the debtor will make fixed payments to the bankruptcy administrator on a regular basis to repay creditors over a 3-5 year period. The plan usually proposes repayment for a 3-year period unless the court approves extending the period to 5 years. Repayment for secured debt such as mortgages may be extended over more than five years. Debtors can repay less than 100% of unsecured debts, so long as they are committing all of their disposable income – that is, income net of reasonable living expenses and business expenses – to the plan.
Where to Start
Debtors under Chapter 12 need to compile the following items to complete the required paperwork for the Petition:
- A list of all creditors and the amounts and nature of their claims, including actual debts, ongoing contractual obligations such as leases, and debts that are claimed by others but disputed by the debtor;
- The source(s), amount, and frequency of the debtor's income;
- A list of all of the debtor's property, including real estate and other property; and
- A detailed list of the debtor's monthly farming/fishing and living expenses.
Organizing this information before contacting an attorney will help make the most of your initial meeting.
Filing Chapter 12 bankruptcy can be an overwhelming process for individuals who are already feeling enormous pressure, financial and otherwise. We can help discuss the options available to your specific situation. Call our office to schedule a free consultation.
The information contained in this website is for informational purposes only. You should not take any legal action based on this information without first consulting with a knowledgeable and experienced attorney.
David Mills is designated by federal law as a debt relief agent because he helps people file for bankruptcy.