Chapter 12 is the most rarely used chapter but, it can also be the most powerful. The Chapter 12 attorneys at the Law Offices of David A. Boone can guide you through the process, helping you break free of overwhelming debt associated with a family farm, ranch or fishing operation. We handle these cases throughout Northern California.
Chapter 12 is designed for family farmers, fishermen or ranchers with regular annual income. It enables them to propose and carry out a plan to repay their debts. There are many reasons to choose Chapter 12. It is more streamlined, less complicated and generally less expensive than a Chapter 11. You have more power than in a Chapter 11, but the procedure is more like a Chapter 13. Creditors don’t vote in a Chapter 12 like they do in a Chapter 11.
Who Qualifies for Chapter 12?
Chapter 12 is available to anyone defined as family farmers or family fishermen with a regular, annual income. This includes some corporations and partnerships. This includes ranching and fishing operations. The debtor must meet a “farm debt” test, as well as either a “farm income” or “farm assets” test. Specifically, the debtor must obtain most (at least 50%) of its gross income from farming.
A corporation or partnership farming operation may also qualify for Chapter 12 if it is controlled by a single family and meets other requirements. If a family farmer has more than $3,792,650 in debts, the individual or business must use Chapter 11. A family fisherman must not exceed $1,757457 in debt to qualify for Chapter 12.
Chapter 12 Structure
Generally, in Chapter 12, the debtor maintains possession of the farm property and continues the farming operation. A trustee is appointed to oversee the case, but he trustee does not operate the farm. The debtor is obligated to provide the trustee with periodic accounting information, regarding income and disbursements, payment of taxes, and similar items. The debtor is allowed to obtain credit, and leasing land and equipment, while maintaining the farm’s day-to-day operation.
In creating this chapter, Congress sought to combine the features that can provide a framework for successful family farmer reorganizations. Under Chapter 12, you may propose a repayment for all or part of your debts, paid to creditors in plan payments over three to five years. You may even be able to modify or reduce the mortgage on your homestead farmhouse. You can also strip junior liens if the property is worth less than you owe on the first mortgage. Creditor Claims are resolved through the Chapter 12 Plan approved by the court.
Filing the petition under chapter 12 “automatically stays” (stops) most collection actions against the debtor or the debtor’s property. 11 U.S.C. § 362. (Filing the petition does not, however, stay certain types of actions listed under 11 U.S.C. § 362(b).) The stay arises by operation of law and requires no judicial action. As long as the stay is in effect, creditors generally cannot initiate or continue any lawsuits, wage garnishments, or even telephone calls demanding payments. The bankruptcy court gives notice of the Chapter 12 bankruptcy case to all creditors whose names and addresses are provided by the debtor.
Chapter 12 and Chapter 13 both contain a special automatic stay provision that protects co-debtors. Unless the bankruptcy court authorizes otherwise, a creditor may not seek to collect a “consumer debt” from any individual who is liable with the debtor. 11 U.S.C. § 1201(a) and 1301. Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose. 11 U.S.C. § 101(8).
When you have a legal problem that affects your farm, your ranch, your fishing operations, and of course your family, you deserve to have assurance. You deserve favorable results from an attorney who has filed successful Chapter 12 cases and who has gotten their Chapter 12 plans confirmed and approved by the Court. The Chapter 12 Bankruptcy Attorneys at the Law Offices of David A. Boone are there to help you.