Chapter Twelve Bankruptcy - Family Farmer or Fisherman with Regular Annual Income

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Chapter 12 Bankruptcy, entitled Adjustment of Debts of a Family Farmer or Fisherman with Regular Annual Income, provides debt relief to family farmers and fishermen with regular income. The process under chapter 12 is very similar to that of chapter 13, under which the debtor proposes a plan to repay debts over a period of time no more than three years unless the court approves a longer period, not exceeding five years. There is also a trustee in every chapter 12 case whose duties are very similar to those of a chapter 13 trustee. The chapter 12 trustee's disbursement of payments to creditors under a confirmed plan parallels the procedure under chapter 13. Chapter 12 allows a family farmer or fisherman to continue to operate the business while the plan is being carried out.


In tailoring bankruptcy law to meet the economic realities of family fisherman family farming, chapter twelve eliminates many of the barriers such debtors would face if seeking to reorganize under either chapter eleven or thirteen of the Bankruptcy Code. For example, a chapter twelve is less complicated, more streamlined, and less expensive than a chapter eleven, which is better suited to large corporate reorganizations. Furthermore, few family fishermen or family farmers find chapter thirteen to be at a advantage because it is designed for wage earners who have smaller debts than those facing family farmers. In chapter twelve, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family fisherman or family farmer reorganizations.

The Bankruptcy Code provides that only a family fisherman or family farmer with "regular annual income" may file a petition for relief under a chapter twelve. 11 United States Code, Sub-Section- 101(18), 101(19A), 109(f). The purpose of this requirement is to ensure that the debtor's annual income is sufficiently regular and stable enough to permit the debtor to make payments under a chapter twelve plan. But chapter twelve makes allowance for situations in which family fishermen or farmers have income that is seasonal in nature. Relief under chapter twelve is voluntary, and only the debtor may file a petition under the chapter.

Under the Bankruptcy Code, "family fishermen" and "family farmers" fall into two categories: (1) an individual and spouse or a individual and (2) a partnership or corporation. Fisherman or farmers falling into the first category must meet each of the following four criteria as of the date the petition is filed in order to qualify for relief under chapter twelve:

The husband and wife or individual must be engaged in a commercial fishing operation or a farming operation.

a) The total debts (both unsecured and secured) of the operation must not exceed $1,757,475 (if a commercial fishing operation) or $3,792,650 (if a farming operation).

b) If family fisherman at least 80%, and if a family farmer, at least 50%, of the total debts that are fixed in amount (exclusive of debt for the debtor's home) must be related to the commercial fishing operation or farming operation.

c) More than 50% of the gross income of the husband and wife or individual for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the commercial fishing or farming operation.

d) In order for a partnership or corporation to fall within the second category of debtors eligible to file as family fishermen or family farmers, the partnership or corporation must meet each of the following criteria as of the date of the filing of the petition:

a) More than one-half the outstanding equity or stock in the partnership or corporation must be owned by one family or by one family and its relatives.

b) The family or the family and its relatives must conduct the commercial fishing or farming operation.

c) More than 80% of the value of the partnership or corporate assets must be related to the fishing or farming operation.

d) The total indebtedness of the partnership or corporation must not exceed $1,757,475 (if a commercial fishing operation) or $3,792,650 (if a farming operation).

e) At least 80% for a fishing operation or 50% for a farming operation of the partnership's or corporation's total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the fishing or farming operation.

f) The stock can't be publicly traded, if the corporation issues stock,.

g) A debtor can't file under chapter twelve (or any other chapter) if during the preceding 180 days a prior bankruptcy petition was dismissed due to the debtor's willful failure to comply with orders of the court or appear before the court or was voluntarily dismissed after creditors sought relief from the bankruptcy court to recover property upon which they hold liens. 11 United States Code, Sub-Section- 109(g), 362(d) and (e). In addition, no individual may be a debtor under chapter twelve or any chapter of the Bankruptcy Code unless he or she has, within 180 days before filing, received credit counseling from an approved credit counseling agency either in a group or individual briefing. 11 United States Code, Sub-Section- 109, 111. There are exceptions in emergency situations or where the United States trustee (or bankruptcy administrator) (1) has determined that there are insufficient approved agencies to provide the required counseling. If a debt management plan is developed during required credit counseling, it must be filed with the court.

NOTES:

In North Carolina and Alabama, bankruptcy administrators perform similar functions that U.S. trustees perform in the remaining forty-eight states. The bankruptcy administrator program is administered by the Administrative Office of the United States Courts, while the U.S. trustee program is administered by the Department of Justice. For purposes of this publication, references to U.S. trustees are also applicable to bankruptcy administrators.

Section 507 sets forth 10 categories of unsecured claims which Congress has, for public policy reasons, given priority of distribution over other unsecured claims.

A fee of $25 is charged for converting a case under chapter 12 to a case under chapter 7.

1) Learn How Chapter Twelve Works

2) Find out about The Chapter 12 Plan and Confirmation Hearing

3) Learn about Chapter Seven Discharge

4) Know the Alternatives To Chapter Seven Bankruptcy

Learn the different Types Of Bankruptcy Cases

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