Chapter 12 Bankruptcy What You Should Know Before Filing

Chapter 12 refers to the chapter in the United States Code that is only available to family farmers and fishermen. It has a similarity to Chapter 13 but specifically covers the above professions and is advantageous only to them. It was made permanent in 2004 after it was renewed just before it was about to expire. The number of persons filing for bankruptcy under this chapter is very small, and this has invited a lot of criticism from experts in this field.

To qualify for Chapter 12 bankruptcy you have to be a fisherman or a farmer. You need to prove that you have had a steady income from the fishing or farming business for a few years prior to filing the bankruptcy. Persons can file under Chapter 11 and 13, but the debt ratio for farmers and fisherman is usually too high to allow this. Debt ratio is an indication of the ratio the debt that the business has in comparison to its assets. Farming and fishing businesses have comparatively very few assets and hence the debt ratios are normally over one.

Chapter 12 filing for bankruptcy requires that more than half your income has to come from the business, and you need to prove that you have had this income for at least three years prior to the year you are filing for Chapter 12 bankruptcy. There is also a restriction on the amount of debt that is allowed for such businesses. The percentage of debt that has to come directly from this business is also regulated and is different for farmers and for fishermen.

A corporation may also file for Chapter 12 bankruptcy if the family concerned owns more than fifty percent of the concerned business and there has been no public trading of the stocks in the company. The family concerned must also have complete control over the business, and at least 80 percent of the business must have a relationship to farming or fishing. There is no differentiation between an individual and a corporation under this chapter for the total debt that is allowed.

When you file for Chapter 12 bankruptcy you need to furnish a full list of the names of the creditors, the amount you owe each of them and the type of claim that each creditor has on your business. As a debtor you would need to furnish all details of your income and its source, details of all property that you own, whether for the business or in your personal capacity. You would also need to furnish a list of expenses that you incur in the farming or fishing business. You would also need to clarify whether your spouse is a participant in the business and would also need to give details about her income and assets.

Chapter 12 bankruptcies do not remove your liability and you continue to be liable for the money you owe. A repayment plan will have to be decided and filed within ninety days with the court. These documents must have the complete list of creditors, taxes you owe and the priority of claims of the various parties. You would have to indicate in this repayment plan a sum at least equal to the amount you owe.

The court will then issue you a bankruptcy discharge which will protect your property and assets from your creditors. It will also bind you as a debtor, and will negate any rights you have over the property and assets so that you are not able to dispose of them in any way. This bankruptcy discharge makes the debtor still liable to any payments due to child support, alimony or mortgages and does not reduce these obligations in any way.


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