Eligibility Requirements for Chapter 12 Bankruptcy: Who Can File?

What is Chapter 12 Bankruptcy?

Chapter 12 bankruptcy provides a specialized solution for financially distressed family farmers
and commercial fishermen, offering structured debt relief tailored to seasonal and income-based
challenges in these industries. Unlike other types of bankruptcy, Chapter 12 is uniquely crafted
to address the unpredictability and capital demands common to agriculture and fishing, making
it a more accessible option than alternatives such as Chapter 11 or Chapter 13.

Chapter 12 bankruptcy was introduced in 1986 to protect family farmers and fishermen who
face unique financial hardships, particularly due to market conditions, unpredictable yields, and
high operational costs. This bankruptcy chapter allows eligible individuals to repay debts over a
three- to five-year period, ensuring they maintain the ability to continue farming or fishing while
restructuring their financial obligations.

Differences Between Chapter 12 and Other Bankruptcy Types

Chapter 12 stands out as a specialized bankruptcy option because it’s tailored for industries
with seasonal income fluctuations. In contrast:

• Chapter 7: Mostly for individual clients who have medical and credit card debt and not a
  lot of equity in their home.
• Chapter 13: Primarily for wage earners and lacks provisions for irregular income.
• Chapter 11: Suitable for larger businesses but can be costly and complex compared to
  Chapter 12.

Chapter 12 vs. Chapter 11 for Family Farms and Fisheries

For family farmers and commercial fishing operations, Chapter 12 bankruptcy is often more
advantageous than Chapter 11 due to lower costs and simplified processes. Chapter 12 also
has less stringent requirements for income regularity, making it easier for those with seasonal
income to qualify.

Who Can File for Chapter 12 Bankruptcy?

Chapter 12 bankruptcy is exclusively available to family farmers and commercial fishermen.
This section clarifies the criteria that define a “family farmer” or “fisherman,” focusing on income
requirements, asset ownership, and operation management.

Defining Family Farmer

The term “family farmer” includes:

• Individuals or married couples operating a farming business, with over 50% of income
  from farming and more than 50% of debt tied to farming operations.
• Corporations and partnerships owned primarily by family members involved in
  farming, with restrictions on ownership structure and income sources.

Eligibility Requirements for Commercial Fishermen

To qualify as a commercial fisherman:

• Individuals or married couples must derive more than 50% of income from
  commercial fishing.
• Corporations and partnerships must be family-owned and operated, with at least 80%
  of assets connected to commercial fishing activities.

Income and Debt Requirements for Chapter 12 Bankruptcy

Income Sources Considered in Eligibility

For family farmers, qualifying income primarily comes from the sale of crops, livestock, and
related agricultural products. For fishermen, qualifying income stems from fishing operations,
including the sale of fish, shellfish, or aquaculture products.

Debt Limits for Chapter 12

Currently, debt limits for Chapter 12 are set by law and adjusted periodically. For family farmers,
total debt must not exceed approximately $10 million, while commercial fishermen face a cap of
about $2 million. This debt must be substantially related to farming or fishing, covering loans for
equipment, supplies, land, and operational expenses.

Importance of the Repayment Plan in Chapter 12

The repayment plan forms the backbone of Chapter 12 bankruptcy, enabling debt restructuring
over a manageable period. Approved by the court, this plan must demonstrate feasible
payments based on projected income.

What Makes a Repayment Plan Feasible?

Feasibility requires a realistic income and expense assessment to ensure the farmer or
fisherman can make timely payments. The plan should account for seasonal income
fluctuations, overhead costs, and anticipated yields or catches.

Structure of Chapter 12 Repayment Plans

Chapter 12 repayment plans span three to five years, with payments allocated to secured and
unsecured debts. Secured debts, such as equipment loans, often take priority, while unsecured
debts are paid according to remaining funds.

Automatic Stay in Chapter 12 Bankruptcy

When filing for Chapter 12, an automatic stay halts all collection activities, providing essential
breathing room for farmers and fishermen. This stay temporarily halts foreclosures,
repossessions, and creditor harassment, allowing operations to continue during restructuring.

How the Automatic Stay Protects Farmers and Fishermen

For family farmers, the automatic stay can prevent land or equipment repossession, which could
otherwise disrupt entire seasons. Fishermen may also retain boats, gear, and other critical
assets, ensuring that they continue earning income during the bankruptcy process.

Challenges in Meeting Chapter 12 Eligibility Criteria

While Chapter 12 bankruptcy offers unique advantages, meeting eligibility requirements can
sometimes be challenging. Family farmers and fishermen may struggle with proving the
seasonal nature of their income or accurately valuing assets, especially during tough financial
times.

The Role of a Chapter 12 Bankruptcy Attorney

Crawley Law Firm emphasizes the importance of seeking legal guidance to navigate Chapter 12
bankruptcy. Attorney Mr. Crawley specializes in understanding the nuances of agricultural and
fishing operations, providing valuable support throughout the filing and restructuring process.

Choosing the Right Chapter 12 Bankruptcy Attorney

Selecting an attorney well-versed in Chapter 12 bankruptcy ensures effective representation,
helping to protect assets and guide clients through each phase of debt restructuring. Crawley
Law Firm offers dedicated services to help farmers and fishermen regain financial control with a
tailored repayment plan.