What is Chapter 12 Bankruptcy?

In recent years, there has been a lot of attention on Chapter 12 bankruptcies throughout the United States. In 2019, the Family Farmer Relief Act was enacted. The Act was intended to help more family farmers restructure and reorganize their debt after years of poor economic conditions and low commodity processes in agriculture. Below, our Orlando bankruptcy attorney explains more about this chapter, and the benefits it holds for agriculture workers and fisherman throughout the United States. 

 Understanding Chapter 12 Bankruptcy  

In 1986, Chapter 12 bankruptcy was introduced in response to the low farm income, low commodity process, tight agricultural credit markets, and record farm debt that plagued the agriculture industry. Chapter 12 bankruptcy is very similar to Chapter 13 in that it reorganizes debt and provides financial relief to family farmers struggling with large debt loads. Also like a Chapter 13 bankruptcy, the repayment plans available in Chapter 12 span between three to five years. 

 What are the Benefits of Chapter 12 Bankruptcy?  

One of the biggest benefits of Chapter 12 bankruptcy is that borrowers can cramdown nearly all types of secured debt. A cramdown allows a borrower to pay the present value of an asset instead of what they initially paid for it. For example, a family farmer may have purchased a tractor for $25,000 several years ago. Today, it may be worth $15,000. If the family farmer filed Chapter 12 bankruptcy today, they would only be required to repay the $15,000. Chapter 12 bankruptcy is the only type that allows cramdowns. 

 Another benefit of Chapter 12 bankruptcy is that family farmers can create a proposed repayment plan to creditors that meet certain requirements under Chapter 12. Creditors do not have to approve the plan, but they also cannot vote against it. Equal monthly payments are also not required, so plans can include balloon or seasonal payments aligned with harvesting and marketing agricultural commodities on the farm. 

Borrowers can also sell, lease, or use property within the estate during the normal course of business without first obtaining court approval. If a farmer sells property that is part of the farm, any tax claims from the sale can be treated as an unsecured claim which may not have to be paid in full, or at all. 

 Lastly, if a farmer cannot meet their obligations according to the payment plan because of a natural disaster or medical illness, they may qualify for a hardship discharge. This allows them to discharge the debt and free themselves of the financial obligation of repaying it. 

 Our Bankruptcy Attorney in Tampa Can Help You Through the Process  

Chapter 12 bankruptcy is an option that can help family farmers and other agriculture workers, but many people are not aware that it exists, or the eligibility requirements they must meet. At Florida Law Advisers, P.A., our Tampa bankruptcy attorney can advise you about what is involved and help you through the process so you obtain the best possible outcome. Call us today at 1 (800) 990-7763 or contact us online to schedule a consultation and to learn more about how we can help with your case. 

 Sources:

congress.gov/bill/116th-congress/house-bill/2336/text 

 uscourts.gov/court-programs/bankruptcy/bankruptcy-basics/chapter-12-bankruptcy-basics#:~:text=Chapter 12 is designed for,or part of their debts.