The United States Bankruptcy laws are designed to provide relief to people who are experiencing extreme financial difficulties. Some chapters of the Code most often used by farmers are Chapter 7, Chapter 11 and Chapter 12. This information concerns Chapter 12 only, the chapter referred to as The Family Farmer Chapter.
Chapter 12 adjusts the debts of a family farmer who has regular income. Under Chapter 12 an individual or couple or, sometimes, a corporation or a partnership file a petition for relief which entitles them to a court order protecting them from their creditors. The farmer filing bankruptcy is called the "debtor." There are certain eligibility requirements; these include a debt ceiling of $1,500,000 and income of at least 50% from farm sources. At least 80% of all debts must be farm related.
In order to file under Chapter 12, a debtor must pay a filing fee of $200 and file a petition. Within 15 days after filing, the debtor must provide a more comprehensive list of liabilities and assets, a statement of income and expenses and must make a deposit of $500 to the Chapter 12 trustee. Within 90 days the debtor must file a plan of repayment disclosing how his creditors will be repaid. The debtor must file a monthly financial report showing all disbursements and receipts. He must list all property and all debts and complete certain other statements.
When the petition is filed, a Chapter 12 trustee is appointed and the debtor has some limitations over his property. The Chapter 12 trustee has the right to inquire extensively into the debtor's assets and liabilities. The trustee can sell, mortgage, rent or dispose of the debtor's property, subject to the input of the debtor and subject to the approval of the court. Exemptions are allowed, but limited to the equity in property, which is determined by deducting the value of any liens against the property from the value of the property. Secured claims, called liens, ordinarily must be paid even after a debtor files for bankruptcy.
Within 20 to 60 days after the petition is filed, the debtor must come to a meeting where the trustee and creditors ask questions of the debtor. At this meeting the trustee may make suggestions or comments as to how the plan of repayment should be made. There will be another meeting called a "preconfirmation conference." At this conference the trustee will meet with the debtor the debtor's attorney, and the creditors who are interested, and try to work out any kind of disputes over claims, liens, and the plan of repayment. Within 45 days of the filing of the plan, the confirmation hearing will be held. At this time, the court will decide whether or not the plan of repayment will be approved. The creditors have an opportunity to comment on or object to the plan of repayment.
If the plan of repayment is approved by the court, then the farmer/debtor must make payments periodically through the trustee. The trustee is permitted to retain up to 10% of all payments made. The trustee then distributes these payments to the creditors in accordance with the plan of repayment that was approved by the court.
A Chapter 12 plan can last for no more than five years. Many unsecured debts may be paid less than 100% of the amount due, if the court approves this in the repayment plan. Throughout the life of a plan the debtor will be accountable to the court and the trustee and must cooperate with the trustee, at all times.
If the debtor completes the plan of repayment, then the debtor will receive a discharge order from the Bankruptcy Court at the conclusion of the plan. At that time all of the debts that were treated under the plan will be discharged unless there are secured debts and the debts have not been paid in full. Certain types of debts such as taxes, alimony and child support cannot be discharged unless paid in full.
Filing for Chapter 12 will impair the debtor's credit rating and may be reported by the Credit Bureau for up to ten years. Some creditors may distinguish favorably between those debtors who file under Chapter 12 as opposed to those who file under Chapter 7.
While individuals can represent themselves, Chapter 12 is complicated. There are exceptions to much of what has been set forth here. Anyone considering filing under Chapter 12 is urged to consult and employ a competent bankruptcy lawyer.
This information was prepared to give you some general information on the law. It is not intended as legal advice about any particular problem. If you have questions about the law you should consult a lawyer. If you do not know a lawyer, you can call the South Carolina Bar Lawyer Referral Service weekdays between 9 a.m. and 5 p.m. The number is 799-7100 in Richland or Lexington Counties, and 1-800-868-2284 from other parts of the state.