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An overview of Chapter 12 bankruptcy

You have spent years on your farm providing food for your neighbors. It has come to the point where you know you cannot keep up with your competitors, and money is getting tight. You want to keep your farm running and hope to leave it in the family for generations to come. What can you do to avoid foreclosure? Is there a way to pay off your debt?

Chapter 12 bankruptcy is a solution for farmers or fisherman with stable income. It enables them to carry out a plan to repay some or all their debts within three to five years. Under the bankruptcy code, the debtors must fall into one of two categories.

  1. An individual or individual and spouse

To fall within this category, farmers or fisherman must meet the following four criteria:

  • The individual or spouses must engage in a farming or fishing operation.
  • The total debt of the farming business must not be over $4,153,150. The total debt of a commercial fishing company must not exceed $1,924,550.
  • At least 50% of a farmer’s total debt or 80% of the fisherman’s total debt must relate to farming or fishing.
  • More than 50% of the prior year’s gross income must come from farming or fishing.
  1. Corporation or partnership

To be eligible for this category, the debtors must meet some of the following:

  • A family must own more than half of the stock or equity.
  • The family must work in farming or commercial fishing business.
  • The corporate or partnership assets must equal more than 80% of the operation.
  • The debt of the farming operation must not exceed $4,153,150. The debt of a commercial fishing operation cannot exceed $1,924,550.

Debtors cannot file under Chapter 12 if they filed another bankruptcy petition and within 180 days the court dismissed it because of failure to appear in court. The debtors must also go to credit counseling within 180 days of filing the petition.

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