The bankruptcy code has a new addition in the form of Chapter 12 bankruptcy, which is for families with farming and fishing as their primary source of income.
This code allows for debt restructuring and repayment plans for farmers and fishers. It keeps their specific needs in mind.
Chapter 12 Bankruptcy came into being in 1986 after an Act of Congress with a provision for extension.
After numerous extensions, it was finally made permanent in 2005.
Eligibility for Chapter 12 bankruptcy
To gain a Chapter 12 bankruptcy, you need to have a regular annual income from farming or fishing operations.
The total debts for a farming operation should not exceed $4,031,575 and for a fishing operation $1,868,200.
Similarly, 50% of the debt for farmers should be from farming. For fishermen, 80% of the debt should be from fishing operations.
Filing for Bankruptcy
There are bankruptcy courts in all areas. Once you have decided to file for Chapter 12 bankruptcy, you need to approach the clerk at the court with the following items:
- A complete list of creditors, with names and address and the type of loans and outstanding amounts
- Sources of income and the frequency of income received
- A full itemized list of monthly expenses such as food, shelter, medicines, gas, feed, transportation, utilities, etc.
- A complete list of movable and immovable assets
In case only one spouse is filing for bankruptcy under Chapter 12, the other spouse must also submit their source of income to determine the family’s financial stability.
After receiving the application, the court appoints a neutral trustee to oversee the bankruptcy procedure.
At the same time, it puts an automatic stay on all collection activities. Creditors cannot file any new suits for collection, and they cannot make calls can asking for repayment of loans.
You can get more info here: Process of Filing for Bankruptcy
A significant part of filing bankruptcy under any chapter – including Chapter 12 bankruptcy – is credit counseling.
A list of certified credit counseling agencies is available from the bankruptcy court clerk.
The applicant needs to undergo mandatory counseling as part of the credit counseling process. They must complete this within 180 days of filing a bankruptcy petition. Applicants can undergo individual or group sessions. It is available in person, via telephone and online.
The court-appointed trustee oversees debt restructuring and debt payments under a new plan. Here is how it is done:
- The applicant needs to make a repayment plan and then submit it to the trustee. If the trustee approves the policy, then the trustee will call a meeting of all the creditors between 21-35 days
- At the meeting, the applicant has to answer questions from the trustee and creditors regarding finances and repayment
- After the meeting, unsecured creditors have 90 days, and government entities have 180 days to file their claim
The plan is then submitted either along with the petition or within 90 days of filing the petition.
Firstly, the court tests the legality of the plan, checks if it is realistic and whether the debtor can make the payments. Creditors usually object to the amount received and the period.
Once confirmed, the debtor and creditors must adhere to the terms of the plan. The debtor must then ensure all payments are made to the trustee, and the trustee will, in turn, pay the creditors.
A debtor discharges themselves of payments under Chapter 12 once they have made all payments as per the plan. Once they make these payments, creditors cannot file new lawsuits to recover the discharged obligations.
Chapter 12 Bankruptcy is a complex process.
Therefore it is best to let a competent bankruptcy attorney handle the process to ensure no mistakes are made.