Family farmers and fishermen face many challenges in today’s economy. The high costs of production, rising fuel prices, and sometimes even the weather, combine to make it difficult to sustain a small farming or fishing operation. Before liquidating land, herds, or boats, family farmers and fishermen facing financial distress should consider the protections offered by Chapter 12 of the Bankruptcy Code.
Chapter 12 is designed specifically for family farmers and family fisherman with regular income to allow them to retain their property and to propose and carry out a plan to repay all or part of their debts. For those who qualify, Chapter 12 has benefits not found in Chapter 11 or Chapter 13. Chapter 12 is more streamlined, less complicated and less expensive than Chapter 11. It allows for higher debt levels than available to individuals in a Chapter 13. It also allows the family farmer or family fisherman to modify the rights of holders of secured claims.
- determine if you qualify for a Chapter 12
- complete credit counseling
- file complete and accurate schedules
- understand the role of the Chapter 12 trustee
- develop the plan and make it work
- miss any court dates
- miss any important deadlines
- incur any new debt without consulting the trustee
- forget that you have the opportunity to modify the plan
- become in danger of conversion or dismissal of the Chapter 11 case
Chapter 12 of the Bankruptcy Code is available solely to “family farmers” and “family fishermen.” A “family farmer” is an individual or individual and spouse engaged in a farming operation whose aggregate debt does not exceed $4,031,575 and not less that 50 percent of the debt arises from the farming operation and 50 percent of the income arises from the farming operation. A family farmer can also be a corporation or partnership in which more than 50 percent of the outstanding stock or equity is held by one family (including relatives), the family conduct the farming operation, 80% of the assets relate to the farming operation and its debts do not exceed $4,031,575. A “farming operation” includes, farming, tillage of soil, dairy farming, ranching, producing and raising crops, poultry, or livestock, and production of poultry or livestock products in an unmanufactured state. Thus, a family farmer could be someone who ranches or raises horses or other livestock so long as they meet the other requirements.
A family fisherman is an individual or individual and spouse whose debts do not exceed $1,868,200, not less than 80% of the debt arises out of a commercial fishing operation, and who receives more than 50% of their income from the commercial fishing operation. A family fisherman also includes a corporation or partnership in which more than 50% of the outstanding stock or equity is held by 1 family or 1 family and the relatives of the family who conduct the commercial fishing operation, more than 80% of the value of the family’s assets relate to the commercial fishing operation and the debts do not exceed $1,868,200.
An individual cannot be a debtor under any chapter of the Bankruptcy Code, including Chapter 12, unless he or she has, within 180 days before filing for bankruptcy, received credit counseling from an approved credit counseling agency either in an individual or group setting. There are emergency exceptions. The clerk for the bankruptcy court maintains a publicly available list of approved credit counseling agencies for the court’s district. Depending upon your area, counseling may be available in person, by telephone or online. After you finish your credit counseling, you will receive a certificate that is filed with the court at the same time you file your bankruptcy petition.
To file a Chapter 12 bankruptcy, the debtor must complete the required Official Forms including the petition, the schedules, and statement of financial affairs. The forms require the debtor to provide the following information:
- a list of all creditors, with names, addresses, and phone numbers and the amounts and nature of their claims
- the source, frequency, and amount of the debtor’s income
- a list of all the debtor’s property
- a detailed list of the debtor’s monthly farming and living expenses, including food, shelter, utilities, taxes, transportation, medicine, feed, fertilizer, and other expenses.
Married debtors must provide the information for each spouse even if only one of them is filing. The statements of financial affairs require detailed information about the debtor’s financial situation and business structure.
The Chapter 12 trustee is an impartial person appointed to administer the case. The Chapter 12 trustee collects payments from the debtor and makes distributions to the creditors. The trustee may also examine proofs of claim filed against the debtor and object to the allowance of improper claims. The trustee may appear and be heard at hearings that concern: the value of property subject to a lien, confirmation of a plan, modification of the plan after confirmation, or the sale of estate property. The trustee ensures that the debtor starts making his or her plan payments timely. At the end of the case, the trustee will make a final report and file a final account of the administration of the estate with the court and the United States trustee.
Plans generally last from 3 to 5 years. Chapter 12 contains both mandatory and optional plan provisions. For example, a plan must provide for the the submission of all or a portion of the debtor’s future income to the trustee as necessary to execute the plan. A plan must provide for payment in full of priority claims unless the claimant agrees to a different treatment or the claims are for certain taxes. The plan must provide for the same treatment of classified claims with a class, unless the person making the claim agrees to a different treatment.
In the case of domestic support obligations (such as child support), the plan must provide payment in full unless the debtor contributes all disposable income to a five-year plan. In addition, a plan may modify the rights of creditors, provide for curing or waiving defaults, set the timing of payments, provide for the sale of property, allow a debtor to assume contracts, and include any other provision consistent with the Bankruptcy Code. Once the court confirms the plan, the plan binds the debtor and each creditor. The debtor must make the plan payments or risk dismissal of the case.
The debtor will be required to appear for certain meetings and court dates. Failure to appear before the court or to comply with court orders has dire consequences. It may be grounds for dismissal of the bankruptcy case. If the court dismisses a case on those grounds, the debtor cannot file another case for 180 days. For example, in the first few weeks of the case, the Chapter 12 trustee will hold a meeting of creditor that the debtor must attend. During the meeting the debtor will appear under oath and both the trustee and the creditors may ask questions about the debtor’s financial affairs and the proposed terms of the debtor’s plan. If a husband and wife have filed a joint bankruptcy, both must attend. Throughout the Chapter 12 case, there may be other times when the debtor must appear.
Unless the court grants an extension, the debtor must file: a) its schedules and statements of financial with the petition or within 14 days of filing the petition; b) its plan with the petition or within 90 days of filing the petition. Failure to timely file a plan or to timely commence plan payments may be grounds for dismissal of the debtor’s case. Once begun, the debtor must make regular plan payments timely on the day set by the trustee.
Once the court has confirmed the plan, the plan entitles the debtor to retain property as long as the payments are made. But the debtor may not incur significant new debt without consulting the trustee. The concern is that additional debt may hurt the debtor’s ability to complete the plan.
Chapter 12 is designed to give some flexibility to the family farmer or family fisherman. At some time during the case, before or after confirmation, the debtor may have a change in circumstance that will affect his or her ability to make the plan payments. In such cases, the debtor can request that the plan be modified either before or after confirmation. The plan as modified must still meet the requirements for the contents of the plan set out in the Bankruptcy Code.
Failure to make plan payments, or other material defaults under the plan, may result in the dismissal of the debtor’s case or the conversion of the case to a Chapter 7 liquidation. But there are several other grounds for dismissal. For example, the Court may dismiss or convert the debtor’s case if there is continuing loss to the estate and no reasonable likelihood of rehabilitation; if the debtor does not timely pay required fees or plan payments; the debtor fails to pay domestic support obligations that first become payable after the debtor files the petition; or debtor is shown to have committed fraud.
Chapter 12 may provide the solution for a family farmer or family fisherman in financial distress. It provides debtors with the breathing room to develop and work a plan to pay off all or a portion of their creditors while allowing debtors to remain in possession of their assets. It provides a more streamlined and less expensive process than a Chapter 11, but with more flexibility and higher debt limits than a Chapter 13. For the family farmer or fisherman, it can provide the process through which they can carry on the important work of growing food for our country.