Law Office of DAVID A. TILEM

Chapter 12 Family Farmer or Family Fisherman Bankruptcy

If you are interested in filing Chapter 12, you should also read the information on Chapter 13. Chapter 12 was designed by Congress for "family farmers" or "family fishermen" with "regular annual income" which is derived primarily from either fishing or agricultural operations. The number of Chapter 12 cases filed in the greater Los Angeles area is very small, but there are some outlying areas where farming and fishing operations are conducted.

Chapter 12 is similar to a Chapter 13 case which has been modified to work for farmers and fishermen for example: the regular income requirement of Chapter 13 has been modified to allow for the seasonal nature of agricultural and fishing businesses. Instead of monthly income, Chapter 12 focuses on annual income. Chapter 12 also has permits greater debts to allow for farm and ship mortgages which often exceed home mortgages. Finally, some partnerships and corporations are eligible for Chapter 12 even though these businesses are not eligible for Chapter 13.

To qualify for Chapter 12, the debtor must:

(1) Be engaged in a farming operation or a commercial fishing operation;

(2) Have not more than $3.54 million in debt (for farmers) and $1.64 million in debt for fishing operations (both numbers have been rounded off).

(3) Have a minimum percentage of the total debt (not counting the family home) related to the business of faming or fishing as follows:

For family farmers at least 50%,
For family fisherman at least 80%., and

(4) Have more than 50% of gross income for the preceding tax year (or for family farmers only, for each of the two prior years) derived from the farming or fishing operation.

(5) If the debtor is a corporation or partnership, more than 1/2 of the ownership must be held by one family and the family must actually do the farming or fishing work. The remaining ownership cannot be publicly traded.

How Chapter 12 Works
The debtors propose a repayment Plan within the first 90 days of the case. The Plan is reviewed by a Trustee who also acts as a disbursing agent under the plan and then approved or not approved by the Bankruptcy Judge.

The Chapter 12 Plan
One of the features of Chapter 12 is that in certain circumstances payments to secured creditors can continue longer than the three-to-five-year period of the plan. For example, if the debtor's underlying debt obligation was scheduled to be paid over more than five years (i.e., an equipment loan or a mortgage), the debtor may be able to pay the loan off over the original loan repayment schedule as long as any arrearage is made up during the plan.