Chapter 12 Bankruptcy

What Is Chapter 12 Bankruptcy?

Chapter 12 bankruptcy is referred to as the "Family Farmer or Fisherman" bankruptcy. A family farmer or fisherman may be a debtor under Chapter 12. A Chapter 12 case provides the opportunity to restructure debts through a payment plan, which normally lasts three years. With court approval, a plan may last up to five years. The Chapter 12 Trustee receives all funds that are paid through the plan and pays creditors from these funds.

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Who Is Eligible to File for Chapter 12?

Chapter 12 is designed for "family farmers" or "family fisherman" with "regular annual income." It enables financially distressed family farmers or fisherman to propose and carry out a plan to repay all or part of their debts. Under Chapter 12, debtors propose a repayment plan to make installments to creditors over 3-5 years.

Is More Financial Help on the Way?

Filing a petition under Chapter 12 automatically stays most collection actions against the debtor or the debtor’s property. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or contact the debtor in any way including by collection notices or telephone calls demanding payment.

Learn More About Eligibility for Chapter 12 Bankruptcy

The Bankruptcy Code provides that only a family farmer or family fisherman with “regular annual income” may file a petition for relief under Chapter 12. The purpose of these requirements is to ensure that the debtor’s annual income is sufficiently stable and regular to permit the debtor to make payments under a Chapter 12 plan. But Chapter 12 makes allowance for situations in which family farmers or family fisherman have income that is seasonal in nature. Relief under Chapter 12 is voluntary and only the debtor may file a petition under the chapter.

Under the Bankruptcy Code, "family farmers" and "family fisherman" fall into two categories: (1) an individual or individual and spouse, and (2) a corporation or partnership. Farmers or fisherman falling into the first category must meet each of the following four criteria as of the date the petition is filed in order to qualify for relief under Chapter 12:

1. The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
2. The total debts (secured and unsecured) of the operation must not exceed $4,411,400.00 (if a farming operation) or $2,044,225.00 (if a commercial fishing operation)
3. If a family farmer, at least 50%, and if a family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
4. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.