What Is Chapter 12 Bankruptcy… An Overview

Bankruptcy is defined as that state when a person or a business is so much in debt that there is no chance of a repayment. In that condition, the person or a business is forced to declare bankruptcy so that all the assets are not taken over by the creditors. The US government offers many laws for bankruptcy protection out of which one is chapter 12 bankruptcy law. The chapter 12 bankruptcy law is specifically designed for family farmers and fishermen.

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The need for chapter 12 bankruptcy law

The chapter 12 bankruptcy law came into practice in the late 80s as a means to provide relief to farmers and fishermen who generally felt a lot of obstacles as chapter 11 and chapter 13 of the code for bankruptcy are very complicated, expensive and provide little benefit. Initially, chapter 12 of this code was thought of as a temporary measure but then it was extended indefinitely. Modeled closely on chapter 13, chapter 12 offers a higher debt ceiling than chapter 13 which makes it more beneficial for farmers and fishermen. It is more streamlined, less complicated and less expensive.

Under chapter 12 bankruptcy law, the government has allocated a certain amount of time during which the debtor has to repay all his loans. Generally, a maximum period of couple of years is the stipulated time but it can be extended only if there are some domestic support claims involved. But the government has also defined an upper limit and in no case the repayment time frame can be extended beyond that.

How to file for chapter 12 bankruptcy law

According to chapter 12 bankruptcy code, there are two categories of fishermen and farmers – an individual and a corporation. To file for chapter 12 bankruptcy, you have to prove that you are a family farmer or a fisherman. The basic criterion is that you should be indulging in farming operations or fishing commercially.

For a fisherman, the government has designated an upper limit and the debt should not go beyond it, out of which a select minimum percentage should be fishing related. While for a farmer, the upper limit for their debt is a little higher, the minimum percentage of the entire debt that should be farming related is lower. In both the cases, any debt of your home is not counted until it is related to farming or fishing operations as well.

Another criterion is that the year before filing for bankruptcy, half of your total income must be from farming related and fishing related endeavors. And the last condition is that the farmer filing for chapter 12 bankruptcy must have a certain amount as income so that the farmer can make payments under the bankruptcy plan. But the law also provides some relief for those farmers and fishermen who have a seasonal income which is voluntary and the debtor concerned has to file a petition.

If a person fulfils all these three conditions, he would be considered a family farmer and fisherman and his chapter 12 bankruptcy petition is granted.

For a corporation filing for bankruptcy under chapter 12, more than half of its stock should be owned by a family indulging in farming or fishing. Rest of the criterions are the same. An added condition is that if the said corporation issues stocks, they cannot publicly deal in it after declaring bankruptcy.

The charges involved in filing a chapter 12 bankruptcy petition

As of the year 2005, the courts charges a certain fee to file a chapter 12 bankruptcy case with an additional charge as miscellaneous administrative fee. Generally the law stated that the fees should be paid to the clerk at the timing of filing the case itself. However, with the court’s permission, this fee can be paid in four installments within some days of filing the chapter 12 bankruptcy petition. When husband and wife file a joint petition, one filing fees and administrative fee is charged. In case the debtors are unable to pay the fees, their case is dismissed without trial.

The chapter 12 bankruptcy law provides some relief to financially unstable farmers and fishermen who are in great debts as it enables them to prepare a plan and repay all or part of their debts.

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