Chapter 12 bankruptcy is another subset or type of bankruptcy that may be filed by family farmers or family fishermen. Similar to Chapter 13, the farmer or fisherman proposes a repayment plan that lasts 3 to 5 years. In comparison to Chapters 11 and 13, Chapter 12 is less expensive and less complex.
An individual or married couple that have a farming or commercial fishing operation may file for Chapter 12. The debts limits of Chapter 12 are higher than Chapter 13. Specifically, the total debt must not exceed approximately $3.7 million for a farmer and approximately $1.7 million for a fisherman. For a family farmer, at least 50% of their debts must come from the farming operation. Likewise, with a family fisherman, 80% of the debts must be from the fishing operation. Finally, more than 50% of the gross income of the individual or the married couple must come from the farming or fishing operation for the prior tax year.
A corporation or partnership may also qualify as a family farmer or fisherman under certain circumstances.
Preparation and Filing
Similar to other bankruptcy chapters, a person that wishes to file for Chapter 12 must gather all of their financial information in order to fill out and complete the Voluntary Petition, the Schedules, and the Statement of Financial Affairs, among other documents. These documents must be filed with the clerk of the bankruptcy court in order to initiate the Chapter 12 case.
By filing a Chapter 12 case, the automatic stay goes into effect, like all other bankruptcy cases. However, Chapter 12 cases bring into effect a unique automatic stay provision that does not exist in other chapters. Specifically, a creditor may not seek to collect a consumer debt from an individual that is also liable on that debt with the Chapter 12 debtor. For example, if John, a family farmer, files for Chapter 12, he is protected by the automatic stay. However, if he has a credit card, on which his brother is also liable, his brother would also be protected by the automatic stay as to that debt. This would not normally be the case under other bankruptcy chapters.
Meeting of Creditors
A Chapter 12 trustee will hold a meeting of creditors after the filing of the bankruptcy petition, similar to other bankruptcy chapters. During the meeting, the trustee and creditors may ask you questions about your petition and financial affairs.
Chapter 12 Plan
Similar to a Chapter 13 case, the debtor must propose a Chapter 12 plan that pays off his or her debts over a period of 3 to 5 years. The plan must pay creditors within the requirements of the bankruptcy laws. A bankruptcy judge must also "confirm" the plan. After confirmation, the Chapter 12 debtor must make regular payments to the trustee, who will then make payments to creditors.
The Chapter 12 debtor does not receive a discharge until all of his or her plan payments have been made. However, there is an exception called the "hardship discharge," which permits a discharge despite having not made all plan payments. This is permitted if the debtor can prove that he or she failed to make all plan payments due to no fault of their own and the cause was not within his or her control. An example may be severe illness.
Chapter 12 is remarkably similar to Chapter 13 in many respects, such as that it requires the proposal of a plan and payments over a 3 to 5 year period. However, Chapter 12 is geared towards fishermen and farmers, and accordingly the government has deferred to their unique and difficult financial circumstances.
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