If you are a New York family farmer facing tough economic times, a Chapter 12 bankruptcy may be just what you need. As its name states, Chapter 12 – Adjustment of Debts of a Family Farmer with a Regular Annual Income applies to family farmers only, not farming corporations, and provides you with the opportunity to reorganize and restructure your farm-related debts.
To qualify for Chapter 12, a minimum of 51% of your annual gross income must result from your farming operation. In addition, your farm-related debts must not exceed $1.5 million. Whatever debt you have on your home, however, does not count unless your home itself “arises from farming operations.”
Chapter 12 benefits
Keep in mind that Chapter 12 bankruptcy does not discharge your farm-related debts. Instead, it allows you to negotiate with your farm’s creditors to restructure and reorganize your respective debts. After concluding these negotiations, you will then devise a plan, which the bankruptcy court must approve, to pay these debts off or substantially down during your bankruptcy period. As part of this plan, Chapter 12 allows you to do the following:
- Sell your unneeded farm-related assets without needing consent from your secured creditors.
- Hold confirmation hearings, if necessary, within 45 days of filing your reorganization plan with the bankruptcy court.
- Pay reasonable rents for your farm-related equipment instead of buying them.
- Use non-cash assets as collateral to secure whatever farm-related purchases you need to make during your bankruptcy period.
Length of bankruptcy period
A Chapter 12 bankruptcy generally takes three years. The bankruptcy judge can, however, give you five years to complete your reorganization plan if you show good cause why you need this extended period of time.
All in all, Chapter 12 may just give you the breathing room you need to get your family farm through its current financial crisis and back on a secure financial footing.