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What is a Chapter 12 bankruptcy?

If you are a family farmer in Iowa who is going through difficult financial times, be aware that there is a bankruptcy procedure designed especially to meet your needs. As findlaw.com explains, it is called a Chapter 12 - Adjustment of Debts of a Family Farmer with a Regular Annual Income. Congress authorized Chapter 12 in response to the many family farmers who are in financial crisis but have too much income to qualify for a Chapter 13 bankruptcy.

A Chapter 12 bankruptcy gives you relief from the burden of heavy debt by allowing you to reorganize and pay your creditors as much as you can in adverse economic situations that often confront agriculture. Some of its major features include the following:

  • You can sell your unneeded assets without the consent of your secured creditors, subject to court approval.
  • All such confirmation hearings should happen within 45 days after you file your plan unless the court grants an exception for cause.
  • You may pay reasonable market rent instead of bearing the cost of lost opportunities.
  • You cannot use cash collateral unless your secured creditor consents to it or the court authorizes you to do so after a hearing.
  • Your plan may include financing for needed purchases to be secured by your assets that have revested in you.

You must have a regular annual income to be eligible for Chapter 12 and at least 51 percent of your individual gross income or that of you and your spouse must come from your farming operation. In addition, your aggregate debts must not exceed $1.5 million. This debt limitation applies to your unliquidated and contingent debts arising from your farming operation; debt on your principal residence is excluded unless it, too, arises from farming operations.

There are various additional rules that apply to your reorganization plan and most plans are limited to three years. The court can, however, increase the time up to five years if you can show cause why this is necessary.

This is general information only and is not intended to provide legal advice.

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