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Friday, September 13, 2019

An Overview of Chapter 12 Bankruptcy

Bankruptcy provides individuals and businesses with an opportunity to restructure or discharge their debt when needed. The most common bankruptcies are Chapter 7, Chapter 11, and Chapter 13. Chapter 7 cases allow for the discharge of debt while cases under Chapters 11 and 13 allow for the reorganization of debt. A relatively unknown bankruptcy chapter, and a fairly recent addition to the Bankruptcy Code is Chapter 12, which came into effect in 1986. Although Chapter 12 operates similar to Chapter 13 since it allows for the restructuring of debt, it is only available to farmers and fishermen.

Who May File for Chapter 12 Bankruptcy?

“Family farmers” and “family fishermen” who have “regular annual income” are permitted to file for Chapter 12 Bankruptcy. Under the Bankruptcy Code, family farmers and family fishermen may be (1) either an individual or individual and spouse, or (2) a corporation or partnership. To qualify as an individual or individual and spouse, the following criteria must be met:

  1. Must be engaged in a farming or commercial fishing operation.
  2. Total debts must not exceed $4,153,150 for a farming operation or $1,924,550 for a commercial fishing operation.
  3. At least 50% of a family farmer’s fixed debts and 80% of a commercial fisherman’s fixed debts must be related to the commercial operation.
  4. More than 50% of the individual’s or individual and spouses’ gross income for the preceding tax year must be from the commercial operation.

For a corporation or partnership to qualify, the following criteria must be met:

  1. At least half the stock in the business must be owned by a single family (including relatives).
  2. The family must conduct the commercial operations.
  3. More than 80% of the value of the business’ assets must be related to the commercial operation.
  4. Total debts must not exceed $4,153,150 for a farming operation or $1,924,550 for a commercial fishing operation.
  5. At least 50% of a commercial farm’s fixed debts and 80% of a commercial fishery’s fixed debts must be related to the commercial operation.
  6. The stock cannot be publicly traded.

What is the Repayment Plan?

For a Chapter 12 bankruptcy, the debtor must propose a repayment plan that will pay back creditors through installment payments for a period of 3 to 5 years. The default duration is 3 years and court approval must be sought for payment plans extending beyond 3 years. When a proposed repayment plan extends beyond 3 years, the court will review the case and determine whether cause exists to grant the extended plan. If cause is not identified, then the payment plan must not exceed 3 years. Once the payment plan has been accepted by the courts and the installment payments completed, the courts will grant a discharge of the remaining debts and close the bankruptcy case.

 


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Serving Southeastern Wisconsin, with offices in Milwaukee and West Bend, Affliated Attorneys, LLC represent clients throughout Milwaukee County, Washington County, Waukesha County, Dodge County, Ozaukee County, Racine County, Sheboygan County, Jefferson County, Fond du Lac County and Walworth County.



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