Chapter 12

Chapter 12 is among the fifteen chapters of Title 11 of the United States Bankruptcy Code. Designed in the 1980s as a response to the problems faced by farmers and fishermen at the time, it enables “family farmers” and “family fishermen” to restructure or reorganize their finances so as to avoid foreclosure or liquidation.

Chapter 12 is very similar to Chapter 13, which deals with “Adjustment of Debts of an Individual with Regular Income”, but it provides more benefits and flexibility to debtors, especially in terms of periodic payments. This is to tend to the seasonal nature of the debtors’ occupation, which is farming and fishing in this case. As in Chapter 13, the debtor proposes a plan to repay his debts within 3 to 5 years.

Who is eligible to file for Chapter 12?

Not many people can file for bankruptcy under chapter 12, as it pertains only to family farmers and fishermen. In fact, in 2011, out of 1.4 million cases of bankruptcies filed in the U.S, only 637 cases were filed under Chapter 12.

According to the United States Bankruptcy Laws, a family farmer or fisherman (either married or single) or even corporations and partnerships engaging in commercial farming or fishing activities, and with a regular annual income can file for Chapter 12 bankruptcy. However, corporations and partnerships are not eligible for Chapter 12 unless at least 50 percent of the company’s equity interest or stock is owned by a single family.

These are the criteria set for a Chapter 12 debtor:

  • The debtor must be engaged in either commercial fishing or farming operations
  • As of April 2016. the total debt of farmers should be less than $4,153,150 and for fishermen, their debt should not exceed $1,924,450
  • For farmers, 50 percent of the total debt should be due to their farming operations, and in the case of fishermen, 80 percent should be on account of their commercial fishing operations. Home mortgages are not included in both cases.
  • In both cases, at least 50 percent of their gross income should be derived from farming and fishing activities

How Chapter 12 works

Firstly, the debtor must file a petition for relief voluntarily under Chapter 12. The debtor, that is the farmer or fisherman, will continue their farming and fishing operations after the case is filed. But they are required to submit a repayment plan in no less than 90 days from the date of filing the bankruptcy case. Only under special circumstances can this deadline be extended.

A trustee is appointed by the court, whose duties are to supervise the operations of the debtor and make sure that the repayment plan is followed until the debt is paid off.