Chapter 12 bankruptcy is a special type of bankruptcy that is only available to farmers and fishermen. This type of bankruptcy was created back in the 1980s, and it is a lot like a Chapter 13 bankruptcy. However, Chapter 12 gives the filer more flexibility by allowing them to make periodic payments. This option is designed to take into account the seasonal nature of fishing or farming for a living.

How does a Chapter 12 Bankruptcy work?

The filing process for a Chapter 12 bankruptcy is very similar to other types of bankruptcy. First, you will need to gather all your financial information, fill out your paperwork, and then file your petition with the court.

Once you file your petition, an automatic stay will go into effect. The automatic stay prevents your creditors from taking certain actions against you to collect your debt, including foreclosure. You will also be assigned a trustee who will oversee your bankruptcy and hold a meeting with your creditors.

What are the eligibility requirements?

Individuals or married couples that own a commercial fishing or farming operation are the only ones eligible to file for Chapter 12. For fishermen, the total amount of debt owed cannot exceed $1,924,550. For farmers, the debt limit is $4,153,150. If you’re a farmer, a minimum of 50% of your debts must be from your farm.

If you’re a fisherman, 80% of your debts must be from your fishing operation. In addition, at least half of your gross income, whether you are an individual or a couple, must have come from the fishing or farming operation during the tax year prior to filing. Under certain circumstances, partnerships or corporations may also qualify.

The Chapter 12 Bankruptcy Repayment Plan

When you file for Chapter 12, a three to five-year repayment plan will be created to give you time to pay back a portion of your debts. Once the bankruptcy judge approves your plan, you will make your payments to your trustee. The trustee makes the payments to your creditors.

Once you make your final payment, your qualified debts will be discharged. In some cases, you can be awarded a “hardship discharge” even if you haven’t been able to make all of your payments. You are only eligible for a hardship discharge if you can prove that there was no way you could make the payments, such as in the case of severe illness.

Although Chapter 12 is similar in many ways to Chapter 13, it has been designed with the unique needs of seasonal farmers and fishermen in mind. If you meet the qualifications for Chapter 13 and you feel your financial situation is hopeless, filing right away may save some of your assets. Enlisting the help of a bankruptcy attorney will speed up the process and ensure that things go smoothly.