Arizona Bankruptcy Lawyers

Monday, December 31, 2012

Chapter 12 Bankruptcy for Farmers

     When lawyers talk about the types of bankruptcy available, we usually focus on the three most common types of bankruptcy – Chapter 7, 11, and 13.  However, there are a few others, including Chapter 12, which is available for “family farmers” or “family fisherman.”  Although Arizona has few, if any, “family fisherman,” there are over 15,000 farms in Arizona, so Chapter 12 bankruptcies are filed in Arizona from time to time. 
     For purposes of the Bankruptcy Code, an individual or a married couple is a “family farmer” if they are engaged in a farming operation, their debts do not exceed $3,792,650, at least 50% of their debts are related to the farming operation, and more than 50% of the income from the previous tax year (or for each of the 2nd and 3rd prior tax years) came from the farming operation.  A corporation or partnership may qualify as a “family farmer” if more than 50% of the stock or equity in the corporation or partnership is owned by one family and that family operates the farm.  More than 80% of the value of the corporation or partnership assets and at least 50% of the corporation or partnership debts must be related to the farming operation and the total debt may not exceed $3,792,650.
     Chapter 12 is a reorganization with similarities to both Chapter 11 and Chapter 13.  As in a Chapter 13, a trustee is appointed whose job it is to evaluate the case, collect payments from the debtor, and make distributions to creditors.  Within 90 days after a Chapter 12 bankruptcy is filed, a plan of reorganization must be filed.  The plan will propose to make payments over a 3 to 5 year period and must be approved by the bankruptcy court.  How a creditor is to be treated in a Chapter 12 plan depends on the type of claim the creditor holds.  Priority claims, such as most taxes and the administrative costs of the bankruptcy, must be paid in full by the plan.  Secured claims must be paid at least the value of the collateral securing the claim, but such claims may be paid over a longer period than five years in some cases.  General unsecured claims must receive at least as much as they would receive in a Chapter 7 liquidation, which is often nothing.    
     After completion of all plan payments, the debtor will receive a discharge of all remaining debts, with limited exceptions.  For more information about the bankruptcy discharge, click here.

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