Chapter 12 Bankruptcy Attorney Louisville
Chapter 12 Bankruptcy Lawyers in Kentucky
Chapter 12 bankruptcy is a newer amendment to the bankruptcy code. It enables family farmers and fishermen to reorganize their finances and avoid foreclosure or liquidation. It’s fairly similar to Chapter 13 bankruptcy, but it gives debtors more privileges. Specifically, it is designed to cater to family farmers or fishermen who have regular annual incomes. If you plan to file for bankruptcy as a family farmer or fisherman, you need a Chapter 12 bankruptcy attorney.
At O’Bryan Law Offices, we offer legal representation for a variety of bankruptcy cases. From Chapter 7 bankruptcy to Chapter 13 bankruptcy, our knowledgeable Kentucky bankruptcy attorneys can set you on the right path. For more information about the services we provide, please call our Louisville bankruptcy office at 502-339-0222 or fill out our online intake form today.
NOTE: The bankruptcy attorneys at O’Bryan Law Offices do not handle Chapter 12 cases. We currently take bankruptcy cases involving Chapter 7 and Chapter 13 only. This page exists for purely educational purposes.
What Is a Chapter 12 Bankruptcy?
Chapter 12 is intended for family farmers or fishermen who have a consistent yearly income. It allows financially challenged family farmers and fishermen to develop and follow a plan to settle their obligations in full or partly. Debtors submit a payment schedule to creditors under Chapter 12 that includes making installment payments to creditors over three to five years. Unless the court permits a longer time for cause, the plan must typically make provisions for payments over three years.
However, unless the plan offers to pay 100 percent of any existing domestic support obligations, it must last for five years and contain all of the debtor’s disposable income. A plan may not arrange for payments to be made over a period of more than five years.
Who Is Eligible to File Chapter 12 Bankruptcy?
Despite its importance, Chapter 12 bankruptcy is only used in a few cases. Chapter 12 bankruptcy is only available to a small percentage of debtors. There were only 498 Chapter 12 bankruptcy filings in 2018, compared to almost 766,000 Chapter 13 and Chapter 7 bankruptcy cases, the majority of which were consumer-related. There have been more than 10 million overall Chapter 7 and Chapter 13 filings in the previous decade, compared to 5,039 Chapter 12 filings. Chapter 12 bankruptcy filings have accounted for fewer than five-hundredths of one percent of all consumer and company bankruptcy files over this time.
Only a family farmer or fisherman with a consistent yearly income is eligible for Chapter 12 relief under the bankruptcy rules. Seasonal earnings are acceptable as long as they are predictable and consistent enough to enable the debtor to make the payments under a Chapter 12 plan.
Chapter 12 debtors might be married or single people, businesses, or partnerships. Each Chapter 12 debtor must possess the characteristics listed below.
- Work in farming or commercial fishing operations
- Total debts do not exceed $4,153,150 for farmers or $1,924,550 for fisherman
- 50% of the debts are owed on farming operations or 80% of the debts are owed on fishing operations. Both cases exclude any home mortgages.
- The individuals take at least 50% of their gross income from commercial fishing or farming operations.
Farms and fishing enterprises controlled by family partners and companies have similar constraints. Unless one family owns over 50% of the stock or capital holdings in a partnership or company, it is not possible to file for bankruptcy under Chapter 12.
What to Know About Chapter 12 Bankruptcy
Chapter 12 of the Bankruptcy Code, by customizing bankruptcy law to fit the financial realities of family farming and fishing, removes many of the impediments that such debtors would face if seeking reorganization under either chapter 11 or 13 of the Bankruptcy Code. Chapter 12 is, in essence, more efficient, less difficult, and less costly than Chapter 11, which is better suited to large-scale company restructuring. Keep in mind that debt restructuring is another, simpler way for consumers to get their finances back on track.
Furthermore, fewer family farmers or fishers benefit from Chapter 13 because it is intended for wage earners with lesser obligations than those faced by family farms. In Chapter 12, Congress aimed to integrate the aspects of the Bankruptcy Code that can help family farmers and fishermen reorganize their businesses.
What Is the Purpose of Chapter 12 Bankruptcy?
Low commodity prices, low farm revenue, high farm debt, and restricted agricultural credit markets prompted the creation of Chapter 12 bankruptcy in 1986. This was in reaction to the dismal economic conditions that beset agriculture. Chapter 12 bankruptcy, which is based on Chapter 13 bankruptcy, offers reorganizational benefits and financial assistance to family farmers who are in debt. These benefits include a three to five year seasonal payback structure and lesser rates as compared to other chapters. Farmers who file under Chapter 12 can restructure their debts quickly and predictably, avoiding asset liquidation or foreclosure.
How Does Chapter 12 Bankruptcy Work?
A person filing for Chapter 12 bankruptcy must assemble all of their financial records and file the formal application, schedules, disclosure of financial affairs, a comprehensive list of debts and creditors, and any other papers the court asks for, much like other bankruptcy chapters. These records, including any needed costs, must be submitted with the bankruptcy court clerk near the person’s home or place of business.
As in other bankruptcy cases, when a farmer or fisherman files for Chapter 12 bankruptcy, an automatic stay is imposed. Without the need for approval from the bankruptcy court, creditors are prohibited from conducting certain collection activities. The automatic stay in a Chapter 12 case protects anybody who is also responsible for any of the Chapter 12 debtor’s consumer obligations, in addition to the debtor. This covers loans obtained for personal, family, or domestic purposes, as opposed to debts incurred for a farming or fishing activity.
The court appoints a trustee to negotiate with the applicant and their lenders, just as it does in other bankruptcy cases. A Chapter 12 trustee will convene a creditors’ meeting as soon as possible. The trustee and creditors may interrogate you about your application and financial circumstances during the meeting. This information will be used to create a repayment schedule for you.
Chapter 12 Repayment Plan
The debtor must present a Chapter 12 plan that pays back their obligations over three to five years, similar to a Chapter 13 bankruptcy. These debts can be both secured and unsecured. The plan must meet the standards of the bankruptcy rules when it comes to paying creditors. Secured creditors must receive the value of their property, and unsecured creditors must be given the same amount as they would have received in a Chapter 7 liquidation.
The bankruptcy judge assigned to your case must also approve the repayment plan. As the Chapter 12 debtor, you must make payments to the trustee on a regular basis after the confirmation hearing. The trustee then makes payments to your creditors. Farmers and fishermen who file for bankruptcy have to submit their payment plan within 90 days of filing the bankruptcy petition.
Elements of a Chapter 12 Repayment Plan
The repayment plan in Chapter 12 has several distinct elements. We list these below.
Required Plan Payments
The debtor must give over all of their expendable cash to the Chapter 12 trustee during the plan period. The distinction between the money earned by the debtor’s agricultural or fishing activities and the amount realistically needed to fund the following is referred to as disposable income in a Chapter 12 case.
- Business expenses
- Expenses related to maintenance and support of the family
Trustees retain a fee from the plan payments, then distribute the balance to creditors.
Mortgages and Secured Claims
Chapter 12 has the benefit of allowing debtors to “cram down” secured debt such as farm mortgages and boat loans. The worth of the security offered for the loan must be paid to lenders and other secured lenders. Any sum outstanding in excess of the collateral’s value is considered unsecured debt, and in Chapter 12 cases, it is generally paid very little. Secured loan payments can be deferred even beyond the plan’s duration, and interests can be cut to a market price.
The best interests of creditors must be met by Chapter 12 arrangements. Creditors must receive at least the same amount under a Chapter 12 bankruptcy as they would receive in a Chapter 7 liquidation, according to the best interests test. Unsecured creditors can be paid cents on the dollar or possibly nothing at all if the best interests test is fulfilled.
Chapter 12 Bankruptcy Discharge
The case will stay open after the confirmation hearing until the debtor has made all due payments to the Chapter 12 trustee. The court will issue the debtor a discharge once all due payments have been completed, and the matter will be closed. With limited circumstances, a discharge discharges a debtor’s duty for debts not covered by his or her Chapter 12 plan. The majority of commitments are revocable. Even under Chapter 12, however, some debts, including child support and alimony, are not dischargeable.
What Are the Benefits of Chapter 12 Bankruptcy?
This type of bankruptcy has several benefits for farmers and fishermen. We list these benefits below.
For starters, practically every secured debt may be crammed down. Cramdowns are permitted just in this chapter. During the filing process, a cramdown occurs when a debtor pays the current market value of a property as opposed to the entire amount.
Repayment Plan Installments
If the repayment plan fulfills the conditions set out in Chapter 12, they can submit a payment schedule to make installment payments to creditors over three to five years. The debtor does not have to accept the proposal and does not have the option of voting against it. Furthermore, no equal monthly payments are required, allowing for seasonal or balloon payments to coincide with the harvest and sale of agricultural goods generated on the farm. Consider reading our blog about consumer proposal vs bankruptcy to learn more.
Using, Selling, or Leasing Property
Third, without the need for court approval, the debtor has the ability to use, sell, or lease assets in the ordinary course of business. Furthermore, if a farmer sells agricultural assets, the taxable claims resulting from those sales may be classified as unsecured claims that may not need to be paid in whole or at all.
Finally, if the farmer cannot finish the payment arrangement due to illness or natural calamities, he may be qualified for a hardship discharge, which effectively relieves him of any outstanding debt.
Contact O’Bryan Law Offices Today
At O’Bryan Law Offices, we understand that when times are tough, it’s hard to juggle a bankruptcy case and your existing obligations. That’s why we’re here to offer our services to struggling debtors. If you need help with your Chapter 7 or Chapter 13 bankruptcy filing, we’re here to help. For a free consultation, please call 502-339-0222 or fill out our online intake form today.