The most common forms of bankruptcy are Chapter 7 and Chapter 13. Chapter 12 bankruptcy is for “family farmers and fisherman”. As you can guess, it is rare for most attorneys to encounter a Chapter 12 bankruptcy, especially for Bucks County bankruptcy lawyers or New Jersey bankruptcy attorneys. I have spoken to a U.S. Trustee out of Reading who has some experience with Chapter 12’s. In any event, I recently spoke with a client from Upper Bucks County who has an incorporated farm and may need Chapter 12 protection. I reached out to a variety of attorneys in the area and not one told me that they had handled a Chapter 12 before. The client was in a bind and, after explaining to him that I have never proceeded with a Chapter 12 before and would have to “figure it out”, we came to an agreement and now we are off and running.
So…what is a Chapter 12 bankruptcy? Farmers and fishermen often accumulate extraordinary amounts of debt compared with other occupations. In 1986 a Chapter 12 bankruptcy was created to assist farmers and fisherman who find they are having financial problems related to their industry yet still desire to stay in these jobs.
Such individuals can file either individually or jointly with their spouse. The total accumulated debt cannot exceed $3,544,525 for a farmer and $1,757,475 for a fisherman and is tied to the consumer price index. At least 50% of the debt must be related to the farming or fishing operation (this normally precludes a lot of hobby/vanity farmers from filing for Chapter 12). Petitioners are required to undergo credit counseling.
Similar to a Chapter 13, the individual(s) file a petition with the bankruptcy court and submit a reorganization plan within 90 days of filing detailing how their secured debt is to be repaid. If the plan is approved, payments are made to a trustee; providing all terms are adhered to, the bankruptcy is discharged within 3-5 years. The petitioner must submit a list of all assets and liabilities, along with a financial statement. Child support, income taxes and alimony must be paid in full.
Before filing for Chapter 12 a farmer or fisherman should consult with a qualified bankruptcy attorney in Bucks County, Pennsylvania, or New Jersey. Said attorney can advise the individual(s) concerning the chances of the business’s success in the future. If success seems dismal the petitioner may be advised to file Chapter 7 which is a liquidation of assets.
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