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Chapter 12 Bankruptcy Online

Chapter 12 Bankruptcy Online

Understanding Chapter 12 bankruptcy

Chapter 12 bankruptcy originally expired in January 2004, but President George W. Bush signed Public Law 108 extending Chapter 12 as a valid option. Chapter 12 Bankruptcy is now only available to family fisherman and farmers.

Chapter 12 bankruptcy was set up to help financially troubled family farmers. A blend of the business-reorganizing side of Chapter 11 and the repayment plan of Chapter 13; Chapter 12 was aimed to help individuals reorganize their debts and repay their creditors without losing their farms.


Family farmers found fault with applying for Chapter 11, which focused primarily on businesses such as corporations, sole proprietorships and partnerships, while Chapter 13 was designed to work with debts smaller than those accrued by family farmers. Chapter 12 also differs from the other forms of bankruptcy as it must be voluntary and performed by the debtor, never the creditor.

Not all family farmers are eligible for Chapter 12 bankruptcy

A regular income is required in order to pay any monthly necessities and still have some left over to pay your creditors. This requirement is flexible as the income may be seasonal rather than monthly.

There are two categories of family farmer, each with their own stipulations:

The first is the family farmer as an individual (with or without a spouse). These family farmers are required to fulfill the following four obligations:

  1. They must own their farming operation
  2. Their total debt cannot be greater than $1.5 million
  3. A minimum of 80 percent of the debt must have been accrued by the farming operation
  4. Over 50 percent of the farmer's gross income must come directly from the farming operation

The second category is a family farmer set up as a partnership or corporation. These family farmers must meet each of the following five obligations:

  1. One family, including relatives, must own over 50 percent of the stock or equity in the partnership or corporation, and the same family must run the farming operation
  2. Over 80 percent of the assets must be involved with the farming operation
  3. The farm's total debt cannot exceed $1.5 million
  4. A minimum of 80 percent of the debt must have been accrued by the farming operation
  5. If stock is issued, it cannot be publicly traded