Chapter 12 bankruptcy is a way for family farmers to restructure their debt over three to five years. The goal of chapter 12 is to streamline the repayment process and avoid the costs associated with chapter 11.
However, to qualify for chapter 12, farmers must meet specific requirements. Also, chapter 12 has two categories: individual farmers and corporations or partnerships. To better understand whether you qualify for chapter 12 bankruptcy, continue reading below.
Individuals and their spouses
According to the US Courts, individuals who want to file for chapter 12 must have no more than $11,097,350 in debt. Out of this debt, farming operations must contribute to at least 50 percent. Additionally, individuals must earn more than 50 percent of their income from farming operations for the previous year. Family farmers may also qualify if they made over half their income from farming in each of the last second and third tax years.
Corporations and partnerships
Corporations or partnerships that file for chapter 12 must have more than 50 percent of their stocks in the hands of one family. Also, the family who owns the farm must actively work in the operation and have 80 percent of the company’s value in the farming industry. The debt cannot exceed $11,097,350 and must be at least 50 percent tied up in debt, specifically from farming. Finally, the corporation’s stock cannot be public.
There is much more to know about chapter 12 bankruptcy if you are a family-owned farm. The main issue is the size and nature of your operation.