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Could Chapter 12 bankruptcy save your farm?

On Behalf of | Jan 5, 2021 | Bankruptcy |

Chapter 12 bankruptcy provides debt relief to families who earn a regular income from farming or fishing. These individuals can reorganize debt over three to five years without many of the restrictions that apply to corporate reorganization under Chapter 13. 

Review the provisions of Chapter 12 bankruptcy if you are struggling to save your farm from mounting debt. 

Eligibility criteria

You can qualify for Chapter 12 bankruptcy if: 

  • You own a commercial farming or fishing operation alone or with your spouse. 
  • Your business has no more than $1,924,550 in debt for a fishing operation or $4,153,150 for a farming operation (both unsecured and secured debt) 
  • At least 80% of total fixed debts for a fishing operation and 50% for a farming operation apply directly to the business. 
  • Your family earned at least 50% of its gross income from the farming or fishing operation during the previous tax year.  

This relatively new form of bankruptcy relief represents just a small percentage of the annual U.S. bankruptcy cases. 

Filing process

After you file a petition for farm bankruptcy and pay the associated fees, you have 90 days to submit a debt repayment proposal to your assigned bankruptcy trustee. Under this plan, your disposable income will go toward secured debts, such as land and boat loans, for three to five years. The trustee calculates disposable income as profit minus reasonable business and family expenses. 

If the trustee approves the plan, you begin making payments right away. At the end of the payment term, you can receive a discharge of remaining eligible debt.