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FAQ about paying debts in a Chapter 12 bankruptcy

On Behalf of | Oct 16, 2022 | Bankruptcy |

Chapter 12 bankruptcy allows family farmers and fishermen to reorganize debts when expenses exceed income.

This bankruptcy option is one of several to consider, so interested parties should know the answers to these frequently asked questions to determine if Chapter 12 is the right option for them.

Do debtors have to pay the entire amount of their debts?

Debtors can include two types of debt when filing for bankruptcy: secured debt and unsecured debt. Secured debt includes property and equipment creditors can retrieve to recuperate the money owed. Creditors have the right to receive the total value of the secured item, even if it takes longer for debtors to pay for the property.

On the other hand, debtors may not have to pay the total amount of unsecured debts. Instead, the courts can arrange for debtors to pay off at least as much as a creditor might receive through liquidating assets in a Chapter 7 bankruptcy.

What happens if debtors can not pay as agreed?

Numerous life changes can affect debtors’ ability to make their required payments. If this happens, debtors may petition the courts for modifications. Also, the debtor can request a hardship discharge in some situations, such as life-altering illnesses and injuries. However, if the courts do not approve alternative payment arrangements, some debtors might face the liquidation of assets in a mandated Chapter 7 bankruptcy.

Chapter 12 bankruptcy provides an option to save family farming and fishing businesses from insurmountable debt. Understanding how this option works may encourage debtors to pursue bankruptcy and keep their businesses operating.