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You may have heard someone mention Chapter 12 bankruptcy. There are four different types of bankruptcy cases: Chapter 7, Chapter 11, Chapter 12, and Chapter 13.  Chapter 12 bankruptcy may only be filed by farmers. It is designed to assist individuals or businesses whose main source of income is from a farming operation. In a chapter 12 case, the debtor (the person or company who filed the bankruptcy case) may file a repayment plan to propose to repay all or part of their debts. The chapter 12 rules are designed to allow a debtor to keep the farming operation, which in many cases is the family farm, and pay off loans and other debts which are against the farm land, farm equipment, and other farm assets. In this way, the loans against the farming assets can be repaid over time so the debtor can keep and continue to use the farming assets.

Who can file Chapter 12?

Each type of bankruptcy case has eligibility requirements. Chapter 12’s eligibility requirements are unique. Chapter 12 bankruptcy is only available to “family farmers” or “family fishermen.” In other words, you are not eligible to file a Chapter 12 bankruptcy case unless you qualify as a “family farmer” or a “family fisherman.” The bankruptcy law provides lengthy definitions of a “family farmer” or “family fisherman.” In a nutshell, you may qualify as a “family farmer” if your total debts do not exceed $4.1 million, at least 50% of that debt arises from the farming operation and more than half of gross income comes from that farming operation. Similarly, you may qualify as a “family fisherman” if your total debts do not exceed $1.9 million, at least 80% of that debt arises from your fishing operation and more than half of your gross income comes from that fishing operation. A corporation may also qualify as a “family farmer” or “family fisherman,” but the requirements are slightly different.

What to Expect When Filing a Chapter 12 Case

A Chapter 12 case starts by filing a Chapter 12 bankruptcy petition in the bankruptcy court. The bankruptcy court charges a $200 filing fee and a $75 administrative fee. The Chapter 12 bankruptcy petition requires you to list every creditor you owe money to; the source, amount, and frequency of your income; all property that you own; and a detailed list of your monthly farming or fishing expenses and living expenses. A trustee is appointed to administer and oversee each Chapter 12 case. One of the most important events in a Chapter 12 case is preparing and filing in the court a written plan for repayment of debts, which is called a “Chapter 12 plan.”

341 Meeting

Approximately 21 to 35 days after your bankruptcy petition is filed the trustee will hold a “Meeting of Creditors.” This is referred to as a “341” meeting because it is required by Section 341 of the Bankruptcy Code (11 U.S.C. § 341). At this meeting, the trustee will place you under oath. The trustee and creditors may ask you questions. You are required to attend this meeting in person and answer questions related to your case.

Confirmation Hearing

After the chapter 12 plan is filed, the bankruptcy court will hold a “Confirmation Hearing.” The purpose of this hearing is for the bankruptcy judge to determine whether your Chapter 12 plan is feasible and complies with the bankruptcy laws. If the judge determines your Chapter 12 plan is feasible and complies with the bankruptcy laws, the judge will confirm your Chapter 12 plan. Once confirmed, the chapter 12 plan becomes a new agreement between you and your creditors that provides how each creditor’s debt will be repaid or treated.  An important part of the plan confirmation is that the terms of the plan become legally binding on you and your creditors.

Completing the Chapter 12 Case

After the payments required under the chapter 12 plan have been made (and other legal requirements have been met), you will receive a discharge order from the bankruptcy court. The discharge order legally discharges all debts provided for in your Chapter 12 plan, with certain exceptions like student loans, child support, and others provided for in the bankruptcy laws. For those debts that are discharged, you are no longer legally liable – in other words, you no longer owe or have to pay a discharged debt.

Final Word

Chapter 12 bankruptcy is a complex legal proceeding that may only be filed by persons or legal entities such as a corporation that qualifies as a farmer under strict definitions in the bankruptcy law. A Chapter 12 bankruptcy involves many rules and exceptions. You should consult a lawyer who practices chapter 12 bankruptcy law if you are considering whether a Chapter 12 bankruptcy case is right for you.

If debt is making you feel overwhelmed, we’re here to help put your mind at ease. Contact Kelley, Lovett, Blakey & Sanders at 1-800-371-4188 or fill out the easy-to-use contact form on our website. With over 30 years of experience and three locations across Georgia, we are the experts in strategically guiding you toward financial freedom.

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