Chapter 12 Bankruptcy

Chapter 12 has a place beside Chapter 7 and Chapter 13 in the Bankruptcy Code of the United States. These three chapters share a common coverage, and that is the individual debtors. However, they are also different from each other. What does Chapter 12 cover that makes it different from Chapters 7 and 13?

Chapter 12 is just one of the five types of bankruptcy protection available to Americans. It is designed specifically for a specific group of individuals.

It is, however, set apart from Chapter 13 and Chapter 7, also aimed to help individuals recover from their debts.

Who can Apply For Chapter 12?

Simply put, Chapter 12 is designed for farmers and anglers, or for people that are employed in the agricultural sector. According to law, these agricultural workers are set apart and are considered a special group that is why they have their own provisions under bankruptcy law that they can run to when they find themselves overridden by debt and in danger of having their lands removed from them.

Of course, if you fall under these categories, you have to meet certain criteria in order to apply for protection under Chapter 12 of the U.S. Bankruptcy Code. These criteria include:

  • 50% or more of your income must come from your lands or fish farms so that the government can determine that you will lose a greater part of your income when these properties are taken from you. Under Section 1005, your farming or fishing must constitute at least 50% of your income in 2 and 3 taxable years before failing in order to qualify even if the percentage of your farming business in relation to your income in the previous tax year does not reach 50%.
  • The debts must have been incurred from actions related to the business.
  • Minimum ownership duration of 3 years is required in order to qualify for Chapter 12 protection.
  • You must meet a certain threshold of debt so you can be protected under Chapter 12. The amounts are different for fishermen and farmers, and can change every year so you must keep yourself updated.
  • Finally, a farmer must have a steady source of income flow to make sure he repays his debts under bankruptcy protection.

What Happens When an Individual Applies For Chapter 12

The process is still the same. Once the petitioner submits his application for Chapter 12 protection, the Bankruptcy Court automatically stays all collection of his debts incurred prior to filing. Afterwards, a plan of payment is arrived at via a meeting with all the creditors and the farmer. The farmer can then start making payments to his creditors, while still keeping his properties as the automatic stay forbids foreclosures and collections not agreed upon in the repayment plan.


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