July 25, 2023

How Chapter 12 Bankruptcy Can Help Save Your Family Farm: A Guide

Chapter 12 bankruptcy is specifically designed for financially distressed family farmers or fishermen with a regular annual income. It allows these debtors to propose a feasible repayment plan tailored to the economic realities of family farming and fishing. With court protection, it can help debtors restructure their debt, reduce the principal balance owed on secured debt, offer debt forgiveness for unsecured debts, and potentially save their family farm from liquidation. 

Additionally, Chapter 12 is more streamlined and less complicated than other forms of bankruptcy, making it a better option for most family farmers seeking to reorganize. However, eligibility requirements apply, and it is important to seek legal counsel before deciding if Chapter 12 is right for you.

Understanding Chapter 12 Bankruptcy

If you need financial relief with a family farm or fishing operation, Chapter 12 bankruptcy may be your saving grace. Chapter 12 bankruptcy, which the U.S. Congress, established in 1986 under the Bankruptcy Code, provides a distinctive reorganization option specifically for family farmers and fishermen with regular annual income.

Chapter 12 bankruptcy’s main goal is to assist struggling family farmers and fishermen in adjusting and reorganizing their debts so they can continue operating instead of facing eviction from their businesses by creditors. This chapter is often more favorable to farmers than Chapter 11 or Chapter 13, as it is less complex and streamlined, with additional benefits included.

If you’re a family farmer or fisherman who’s struggling with mounting debts and you want to keep your business operations running despite the financial difficulties, Chapter 12 Bankruptcy could be the solution to help you get back on track. 

Benefits of Chapter 12 Bankruptcy

Allows family farmers or fishermen to implement repayment plans.

The primary benefit of Chapter 12 bankruptcy is that it allows financially distressed family farmers or fishermen to propose and implement a feasible repayment plan over three to five years, tailored to their economic conditions. Unlike Chapter 7 liquidation, which discharges all nonexempt debts, Chapter 12 restructures secured debts over time while allowing agricultural entities to reduce principal balances and interest rates on secured loans.

Eliminates various barriers.

Chapter 12 eliminates various barriers faced by family farmers seeking reorganization under Chapters 11 or 13. In addition, filing for Chapter 12 can also help avoid expensive farming property sales through foreclosure auctions or sheriff sales. Instead of losing productive land that many farmers have worked hard for generations to obtain, these farmers may be able to keep their land productive while effectively paying back creditors.

Offers an automatic stay that prevents collection actions. 

It’s also worth noting that, unlike other bankruptcy chapters, Chapter 12 offers an automatic stay that prevents most collection actions against debtors during the pendency of their bankruptcy term. This feature means willing lenders can restructure the debt for secured creditors, including modifying interest charges, extending terms for repayment, and restructuring loans.

However, it is critical to recognize that applying for any type of bankruptcy may negatively affect your credit profile and report for several years. Therefore, it is important to assess your financial circumstances thoroughly before filing for Chapter 12, as this process isn’t for everyone.

How Chapter 12 Bankruptcy Can Help Save Your Family Farm

Debt Relief and Financial Restructuring

Under Chapter 12, you may have more time (three to five years) to pay off debts than under Chapter 11 and 13, making repayment manageable with little disruption in your farm operations. The repayment plans assessed by the courts place priority on farm-related debts, while non-agricultural debt is treated in line with Chapter 13 regulations.

Potential for Debt Forgiveness

After making scheduled payments on secured debts, a Chapter 12 plan may provide for the discharge of any remaining debt, triggering a fresh start while allowing the farm to continue operations uninterrupted.

This means that unsecured debts, typically incurred through business credit cards and personal loans, can be eliminated or reduced if included in the reorganization plan. Depending on the circumstances of your case, you may also be able to reduce or discharge tax debt related to your business assets.

Flexibility and Protection

Chapter 12 bankruptcy provides farmers with another benefit: the flexibility to adjust their operations as necessary without losing farmland to proceedings in bankruptcy courts. The automatic stay offers instant protection against collection activities such as lawsuits, liens, levies, and foreclosures.

While bankruptcy might not be an ideal long-term solution or desired outcome for some clients, it remains a valuable option that gives family farms breathing room and keeps their livelihoods intact.

Debt Relief and Financial Restructuring

One of the primary benefits of filing for Chapter 12 bankruptcy is debt relief. With the assistance of the court system, farmers can consolidate their debts into a manageable repayment plan that is tailored to their specific financial situation. The goal here is to reduce the overall debt burden on the farmer by making it more manageable and sustainable in the long run.

Furthermore, Chapter 12 bankruptcy provides farmers with protection from creditors who may be threatening to foreclose on their property or seize their assets. Once a farmer files for bankruptcy, a stay is put in place that prevents creditors from taking action against them without permission from the court. This gives farmers some breathing room and a chance to get back on track financially.

It’s worth noting that not all debts can be discharged under Chapter 12 bankruptcy. However, certain debts may be reduced or restructured to make them more manageable. For example, priority debt (e.g., taxes owed) must be paid in full under a Chapter 12 repayment plan, but other unsecured debts may not need to be paid in full if doing so would pose an undue hardship on the farmer.

Work With Our Chapter 12 Bankruptcy Attorney in Media, PA

At Siddons Law Firm, our Chapter 12 Bankruptcy Attorney in Media, PA, specializes in helping farmers and fishermen navigate the complexities of bankruptcy and find a fresh start. With years of experience and a deep understanding of the unique challenges faced by those in the agricultural industry, our attorney is here to provide expert guidance and support.

With our Chapter 12 Bankruptcy Attorney, you can have peace of mind knowing that your best interests are being represented and that you have a dedicated advocate on your side.

Contact us today to schedule a consultation and take the first step toward financial freedom.