July 5, 2023

Who Qualifies for Chapter 12 Bankruptcy? Here’s What You Need to Know

Tall crops that are barely touching the sky surround you as you stand in the fields of your family’s farm. Your livelihood, your heart, and your soul poured into this land. However, a looming storm of financial burden hangs overhead, casting shadows on what once was fruitful soil. With debt weighing heavy on your shoulders, you desperately search for an escape. 

But hope emerges as you discover Chapter 12 bankruptcy—a lifeline designed specifically for family farmers and fishermen like you. Dive in with us to explore who qualifies and how it just might be the beacon that steers you back to financial stability.

Who Qualifies for Chapter 12 Bankruptcy?

Chapter 12 bankruptcy, also known as the Family Farmer Bankruptcy Act, is a specialized form of bankruptcy designed specifically for farmers and fishermen who are experiencing financial distress. With this type of bankruptcy, debtors can propose a repayment plan over three to five years to repay all or part of their debts.

To be eligible for Chapter 12 bankruptcy, debtors must meet certain criteria. First and foremost, debtors must be engaged in a farming or fishing operation. They must also have a regular annual income that comes from their farming or fishing operations.

Moreover, farmers and fishermen filing for Chapter 12 bankruptcy must fulfill several requirements. In order to be eligible for bankruptcy, more than 50% of the debtor’s gross income from the previous tax year must have come from their farming or fishing operation. This means that if you earned $100,000 last year but only $40,000 came from farming, you would not qualify for Chapter 12 bankruptcy.

Additionally, 50% of the debt that is fixed in amount must be related to the farming or fishing business. This means that property such as a home is not eligible to be counted toward the debt limit. While some argue that it could be unfair to exclude one’s personal residence from being included as an asset in determining eligibility because they see homes as important parts of American culture and stability for families, others argue that including a person’s home would defeat the purpose of Congress’s creation of these specific bankruptcy provisions by subjecting people to the same process and rules as other bankruptcy chapters, instead of specific provisions that were created to address the issues faced by farmers and fishermen.

Overview of the Chapter 12 Process

  • It begins when a farmer or fisherman files a petition with a bankruptcy court. This petition must be filed in the district where the debtor resides, owns the property, or has their principal place of business.
  • Once a petition has been filed with the court, meetings are held between creditors and debtors under court supervision. The main goal of these meetings is to identify the debtor’s assets that can be used to repay outstanding debts to creditors. The debtor’s property is then measured, valued, and sold if necessary to repay creditors over time.
  • After filing for Chapter 12 bankruptcy, creditors cannot call, send letters or emails seeking payment, or use any other collection methods for the debts covered by the automatic stay. For instance, if you owe money on your credit cards, auto loans, or medical bills, filing for Chapter 12 will put an immediate halt to all collection efforts related to those debts. It’s important to note that secured debts such as mortgages and car loans need streamlining but will still need payments through processes different from the general collection methods applied by creditors.

Eligibility Requirements for Chapter 12

Chapter 12 bankruptcy is specifically designed to help “family farmers” or “family fishermen” who are facing financial distress and need a viable solution to manage their debts and repay them over time. However, not everyone can file for Chapter 12 bankruptcy, as there are certain eligibility requirements that must be met.

To qualify for Chapter 12 bankruptcy, the debtor must be engaged in a farming or fishing operation, have a regular annual income, and have a total combined debt limit within the maximum limits set by the law. The Consolidated Appropriations Act of 2021 has increased the debt limits for farmers and fishermen who wish to file for Chapter 11 or Chapter 12 bankruptcy.

The debtor must be engaged in a farming or fishing operation. 

This means that the debtor must derive more than 50% of their gross income from their farming or fishing operation in the previous tax year. They cannot be an employee of another similar operation; they must own and operate the business themselves. Furthermore, it helps ensure that those who do file are genuine cases of financial hardship due to circumstances specific to their industry, rather than people merely looking for an easy way out of their debts.

Having a regular annual income. 

This means that the debtor must have a steady income that can be used to pay debts under the repayment plan proposed in Chapter 12 bankruptcy. The law does not set any minimum threshold for this requirement, but it should be enough to cover basic living expenses and allow for the repayment of debt.

This requirement aims to ensure that the debtor has enough disposable income to make a repayment plan viable and sustainable. If the debtor has no ability to make payments on their debt, Chapter 12 would not be an appropriate solution.

Finally, there are limits on how much debt farmers or fishermen can have to qualify for Chapter 12 bankruptcy. These limits differ between farms and fisheries but have been increased because of recent changes in legislation. Qualified family farmers can now have up to $10 million in secured and unsecured debts, and qualified fishermen can have up to $2,725,625 (adjusted for inflation) in secured and unsecured liabilities.

Farmer and Fisherman Guidelines

For farmers and fishermen, Chapter 12 bankruptcy is a way to reorganize their debt and improve their finances. However, not every farmer or fisherman qualifies for this bankruptcy option. To be eligible for Chapter 12, the applicant should meet certain guidelines related to their occupation, income, and debt.

First and foremost, farmers and fishermen who file for Chapter 12 must own or operate a farming or fishing operation. This requirement is critical because it ensures that only those who truly depend on agriculture or fishing for their livelihood can benefit from this type of bankruptcy.

In addition to the operational requirement, those filing for Chapter 12 must also show that more than 50% of their gross income came from this venture in the previous tax year. This requirement prevents individuals from trying to exploit the system by claiming farming as their primary source of income while working in another profession.

The requirement of 50% income may be challenging for those who have just started farming or fishing. Additionally, some individuals may see this as an unfair limitation on their ability to access bankruptcy relief. However, the idea behind Chapter 12 is to provide help to those whose occupation depends primarily on agriculture or fishing.

Another critical guideline is related to the type of debt that farmers and fishermen have accumulated. In order to be eligible for Chapter 12, at least half of their debts must come from either farming or fishing operations. This means that loans related to personal property such as houses or cars are not counted toward the debt limit.

Understanding these guidelines can help farmers and fishermen evaluate their eligibility for Chapter 12 bankruptcy properly.

Work With Our Chapter 12 Bankruptcy Attorney in Media, PA

At Siddons Law Firm, our experienced Chapter 12 bankruptcy attorney, Michael Alan Siddons, specializes in helping individuals and family farmers in Media, PA, and its surrounding areas, navigate the complex bankruptcy process. With his expertise and knowledge, he can guide you through every step to ensure the best possible outcome for your financial future.

By hiring our Chapter 12 bankruptcy attorney in Media, PA, you can regain control of your finances and find relief from the burdens of debt. We are committed to helping you achieve a fresh start and a brighter financial future.

Contact us today at 610-255-7500 to schedule a consultation with our Chapter 12 bankruptcy attorney in Media, PA.