With energy and land prices soaring, a number of farmers are finding it difficult to stay afloat; for those who need it, there is a specific bankruptcy chapter for farmers. The Chapter 12 bankruptcy law was created to help farmers with regular income reorganize debt while keeping their family lands and farming businesses. Because many farmers have heavy debt and loan obligations that keep them from making monthly payments on time, the terms of Chapter 12 are attractive. It can allow farmers to remain in possession of their farms and run their businesses as usual, but under the terms of a court-approved repayment plan.
Bankruptcy laws only allow family farmers or family fisherman with “regular annual income” to file for relief under Chapter 12. The reason for this requirement is to ensure that the debtor's annual income is sufficiently stable and regular to permit the debtor to make payments under a chapter 12 plan. The code does make allowance for situations in which family farmers or fishermen have income that is seasonal in nature. There are some debtors who cannot file under Chapter 12 or any other chapter. If these debtors, within 180 days of the new filing, where in one of the following situations they cannot file: had a prior petition dismissed due to failure to appear in court, failed to comply with court orders, or had relief given to their creditors by the bankruptcy courts to recover property upon which they hold liens.
A person starts the Chapter 12 bankruptcy process by filing a petition with the bankruptcy court that serves their area. If the debtor is a corporation or partnership, then the petition can go to the court where the debtor has principal assets or the main place of business. Unless the court orders otherwise, the debtor also has to file the following documents with the court (husbands and wifes may file joint petitions or individual petitions):
1) Schedules of assets and liabilities;
2) A schedule of current income and expenditures;
3) A schedule of executory contracts and unexpired leases;
4) A statement of financial affairs;
Family farmers eligible for Chapter 12 fall into two categories: either an individual (or individual and spouse), or a corporation or partnership. If the petition is made by an individual or an individual and spouse then these conditions apply: if the debtor is filing as an individual or individual and spouse, the total debts must not exceed $3,792,650, and at least 50 percent of that debt must be directly related to the farming operation. Additionally more than 50 percent of the income of the individual or husband and wife must have come from farming. A family farming business cannot file under Chapter 12 unless the individual, husband and wife, or partnership has engaged in credit counseling from an approved credit agency within 180 days prior to filing. The income requirements may vary by state, so it is important to check with your state court or consult a bankruptcy attorney before filing.