Chapter 12 Bankruptcy

Background

A Chapter 12 bankruptcy is designed for family farms or family fisheries with “regular annual income.” The goal of the Chapter 12 bankruptcy is to provide a specific framework by which family farmers and fisheries can satisfy part or all their debts via a repayment plan.

Chapter 12 bankruptcies resemble Chapter 11 and 13 bankruptcies but provide more payment flexibility for the seasonal nature of farms and fisheries. A farm or fishery can fall into one of two categories: (1) an individual or married couple, or (2) a corporation or partnership. Debtors must take several steps to file a Chapter 12 bankruptcy. The debtor must file a voluntary petition, the schedules (which function as an overview of the debtor’s financial situation), the statement of financial affairs, a complete list of your debtors and creditors, and any other document upon the court’s request.

Plan and Confirmation

One benefit of a Chapter 12 filing is that farmers and fishermen do not have to liquidate their property and other assets if the debtor completes their repayment plan. After filing a petition, debtors have 90 days to submit a proposed repayment plan. The plan must provide that the debtor pays back all priority claims (e.g., tax debts, domestic support obligation, etc.) within a 3-to-5-year period. Once the plan is submitted, the bankruptcy judge must confirm the plan before it will take effect. Upon confirmation, the plan is binding on the debtor and each creditor. From that point forward the farmer or fisherman will pay the trustee regular payments (as provided by the plan), who then pays the creditors. During this time, the debtor may not acquire any new significant debt without consulting the bankruptcy trustee first.

Dismissal and Discharge

The court may dismiss the case or convert it to a Chapter 7 bankruptcy if there is a determination that the debtor committed fraud during the Chapter 12 filing. Failure to make the regular plan payments may also result in the case dismissal.

One exception to the discharge order is a “hardship discharge.” This allows the debtor to still discharge their debts even if they have failed to make all the plan payments. One stipulation to this is that the creditors must receive the same amount as they would have in a Chapter 7 filing. Similarly, the hardship discharge does not apply to any debts that are non-dischargeable in a Chapter 7 case.

As with any bankruptcy, a Chapter 12 bankruptcy is a long and complicated process. Any fisherman or farmer who is considering a Chapter 12 filing should consult an Indiana bankruptcy attorney first. If you are considering bankruptcy, contact the Indiana bankruptcy attorneys at McNeely Law to discuss your options.

This McNeely Law LLP publication should not be construed as legal advice or legal opinion of any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult your own lawyer on any specific legal questions you may have concerning your situation.