About Chapter 12 Bankruptcy
Chapter 12 bankruptcy is a recent addition to the Bankruptcy Code that is designed specifically for “farmers” (a term with very particular criteria as it is defined in the bankruptcy context). Your eligibility (whether or not you are a “farmer”) is determined by examining the percentage of income attributable to farming as well as the percentage of debt derived from farming. If you are primarily a farmer, you will probably not have a problem qualifying. But if you have significant other sources of income, you may have a problem.
Chapter 12 bankruptcy legislation was largely copied from chapter 13. However, relief is broader in many aspects such as amount of debt allowed, ways of modifying debt and even certain tax provisions. The goal of chapter 12 bankruptcy is to give farmers a way to address large amounts of debt that traditionally had been carried on short term notes.
What A Farmer Can Do With Chapter 12 Bankruptcy
- Discharge unsecured debt
- Reduce the amount of secured debt to the current value of the collateral
- Re-amortize notes over a term of years reflecting the nature of the collateral – land mortgages over a 20 to 30 year period, personal property notes usually 7 to 5 years depending on the condition of the collateral
- Lower interest rates to an industry standard for agricultural notes
- Surrender property to retire debt
- Retain necessary farm assets and rehabilitate or enhance the overall farm operation over the life of a plan
Certain payments- including “disposable income” is paid into the plan for a period of three to five years. At the end of the applicable time period, remaining unsecured debt – including the portion of secured debt that may have been rendered unsecured by a plan – is discharged. Any modified loan provisions remain intact, however