Chapter 12 bankruptcy is similar to Chapter 13,  but it has been written to suit a family farmer or fisherman, whose debt is likely to be higher than the debt held by others and whose income may be seasonal and derived from a family-owned business.

 

It eliminates many of the barriers faced by those filing under Chapter 13 or Chapter 11 ((a reorganization chapter ordinarily used by commercial enterprises). It is more appropriate for those with very large debts than Chapter 13, and it is less complicated and less expensive that Chapter 11, which better suits large corporations.

 

Generally, it allows you to propose a plan to make installment payments to creditors over three years. But, unless the plan proposes to pay 100 percent of any alimony or child support payments, it must be for five years and include all of your disposable income.

 

Your disposable income is your income minus any child support payments and the amount reasonably necessary for the maintenance and support of you and your dependents, plus charitable contributions of no more than 15 percent of your gross income. If you operate a business, your ordinary operating costs are also not counted as disposable income.

 

 

Family farmers and family fishermen fall into two legal categories: an individual or an individual and a spouse, or a corporation or partnership.

 

If your fall under the individual or individual and spouse category, to qualify for relief under Chapter 12 you must meet four criteria as of the date the bankruptcy petition is filed:

 

   You must be engaged in a farming or commercial fishing

       operation.

 

    The operation must have total debts of $3,544,525 or less if it is farming or $1,642,600 or less if it is fishing.

 

   At least 50 percent of a farmer’s fixed-amount debts

      (exclusive of debt for the farmer’s home) must be related to the farming operation. For a fisherman, at least 80 percent must be related to the fishing operation.

 

   More than 50 percent of the gross income of the individual or the couple for the previous tax year must have come from the farming or commercial fishing operation. For farmers, that also must be true for the second and third prior tax years.

 

If you fall under the corporation or partnership category, to qualify for relief under Chapter 12 you must meet six criteria as of the date the bankruptcy petition is filed:

   More than 50 percent of the outstanding stock or equity in the corporation or partnership must be owned by one family, or one family and its relatives.

 

   The family or the family and its relatives must conduct the farming or commercial fishing operation.

 

   More than 80 percent of the value of the corporate or partnership assets must be related to the operation.

 

   The total indebtedness of the corporation or partnership must not exceed $3,544,525 for farming or $1,642,500 for fishing.

 

    At least 50 percent of a farming corporation or partnership’s fixed-amount debts (exclusive of debt for one home occupied by a shareholder) must be related to the farming operation. For a fishing corporation or partnership, at least 80 percent must be related to the fishing operation.

 

   If the corporation issues stock, it cannot be publicly traded.

 

 You cannot file for any type of bankruptcy if, within the last 180 days, a bankruptcy petition you filed was dismissed due to your willful failure to appear in court or comply with any orders of the court, or you voluntarily dismissed the previous petition after creditors sought relief from the court to recover property on which they hold liens.

 

You also cannot file for bankruptcy unless you have received credit counseling from an approved credit counseling agency within the last 180 days. A list of government-approved credit counselors is available online.

 

There may be exceptions to the credit counseling requirement in emergency situations or in areas where a U.S. trustee or bankruptcy administrator has determined there is a shortage of credit counselors.

 

 

A Chapter 12 bankruptcy case begins when you file a petition with the bankruptcy court serving the area where you live or your corporation or partnership has its place of business or principal assets. You can search online for your bankruptcy court.

 

Along with the petition, you will generally have to file a list of current income and expenditures, a list of assets and liabilities, a list of executor contracts and unexpired leases and a statement of financial affairs.

 

The forms needed to file this paperwork are not available from the court. They can be bought at a legal stationary story or obtained online.

 

You will pay a $300 filing fee and a $39 administrative fee when you file. A payment plan may be set up with the court’s permission.

 

A husband and wife may file together or separately, but married people must submit financial information for each spouse regardless of how the petition is filed. If they file together, only one set of fees will be charged.

 

Once the petition is filed, a trustee will be appointed to administer the case, collect your payments and pay your creditors.

 

Filing your petition stops most collection efforts by your creditors. As long as the stay is in effect, they cannot launch or pursue any lawsuits, garnish wages, or even make phone calls to demand payment. Filing also will stop them from trying to collect from anyone who has cosigned a note for you.

 

Within 60 days of a Chapter 12 filing, the trustee will set up a meeting with your creditors, during which you will be placed under oath to answer questions from the trustee and your creditors about your financial affairs and the proposed terms of your payment plan.

 

Any problems with the plan are typically resolved at the meeting or shortly thereafter.

 

To preserve their rights to collect any distributions of the bankruptcy, unsecured creditors – those who loaned you money without demanding collateral to guarantee payment – must file a claim within 90 days of the first date set for the creditors meeting. Governmental units have 180 days.

 

The next step is a court hearing for approval of your payment plan.

 

 

Unless an extension is granted, you must file your payment plan with the petition, or within 90 days of filing the petition. It must provide for regular payments of fixed amounts to the trustee, who will distribute the cash to creditors according to the plan. Typically, the plan offers creditors less than full payment.

 

Claims will be sorted into three groups: priority, secured and unsecured.

 

Priority claims, such as taxes and the costs of the bankruptcy proceeding, will be paid in full, unless a creditor agrees to have a claim treated differently. Domestic support obligations also must be paid in full under the plan, unless the debtor contributes all disposable income under a five-year plan.

 

 

Secured claims, such as a car loan, are those for which the creditor has the right to take back certain property—the collateral -- if you fail to pay. The plan must provide the creditor with at least enough to cover the current value of the item – say, the depreciated value of the car. Under  Chapter 12, payments to secured creditors can sometime be extended beyond the three- to five-year plan period. In the case of an equipment loan or a mortgage, this allows you to pay off the loan over the original loan payment schedule as long as any amounts that are in arrears are paid off during the plan period.

 

Unsecured claims, such as those for credit card debt, are those without collateral. The plan does not have to provide for payment of all your unsecured debt as long as you agree to pay all your disposable income to plan payments for as long as the plan is in effect, and as long as they receive at least as much under your plan as they would have if your assets had been liquidated under Chapter 7. 

 

Within 45 days of the filing of the plan, a bankruptcy judge decides at a confirmation hearing whether the plan is feasible and in accord with bankruptcy law. Creditors may appear at the hearing and if they object, it is usually because the amount they would receive under the plan is less than they would have gotten had you filed for Chapter 7 liquidation or because the plan does not tap all of your disposable income.

 

If the judge does not approve the plan, you may file a modified plan or convert your case to a Chapter 7 liquidation case. If you do not come up with a plan that can be approved, the case will be dismissed and the judge may authorize the trustee to keep some of the payments you have made under the plan to cover costs, but any additional money will be returned to you.

 

The plan may be modified after it has been approved, as well as before.

 

Once the plan is approved, you will be required to make regular payments to the trustee, which will require that you live on a fixed budget for a prolonged time. And you will not be able to take on any significant new debt without consulting with the trustee because new debt may hinder your ability to complete the plan.

 

Failure to complete the plan can lead to dismissal of the case. A determination that you have committed fraud in connection with the case can also lead to dismissal, or to having the case converted to a Chapter 7 liquidation.

 

 

Once all the payments have been made you will receive a discharge as long as you certify that all domestic support obligations that came due have been paid.

 

The discharge releases you from all debts provided for in the plan or disallowed, with some exceptions. Creditors who were provided for under the plan can no longer start or continue any action to collect the discharged debts.

 

Some debts, though, cannot be discharged, including alimony and child supports, money obtained through filing false financial statements, debts for willful and malicious injury to person or property, debts for death or personal injury caused by driving drunk, or debts from fraud or defalcation while acting in a fiduciary capacity or embezzlement or larceny.

 

Chapter 12 discharge is complicated and it is recommended that you talk to a lawyer before you file your bankruptcy petition.

 

If you fail to complete your Chapter 12 payment plan due to circumstances beyond your control, you can apply for a hardship discharge that will only be granted if you are unable to modify the plan to fit your new circumstance, and your creditors have received as least as much as they would have if you had filed for Chapter 7 liquidation. Illness or injury that keeps you from working enough to bring in money to support a plan are examples of circumstances beyond your control.

 

 

A Chapter 12 discharge of debt may be revoked if confirmation of your payment plan or the discharge is obtained by fraud. The judge can revoke the order of confirmation or the discharge.

 

Assuming the discharge stands, you have the right to pay any discharged debt you choose. Sometimes people repay family members or someone with whom they want to maintain a good relationship, such as a family doctor.

 

If a creditor tries to collect a debt after it is discharged, you can file a motion with the court reporting them and asking that the case be reopened to address the matter. The bankruptcy court often does so to make sure the discharge is not violated. The normal sanction for violating a discharge injunction is civil contempt, which often carries a fine.

 

 

     Source: The Web site of the federal court system, uscourts.gov