Restricted to family farmers or fishermen, Chapter 12 bankruptcy allows for the seasonal nature of the debtors' professions.
Among the provisions of Chapter 12 are: debt ceilings of about $4 million for fishermen and about $1.8 million for farmers; at least 50 percent of the individual or couple's income for the prior year must be derived from that profession; and more than 50 percent of the farmer's debt and 80 percent of the fisherman's debt must be directly related to the profession. The applicant must also supply financial documentation on his or her spouse and other members of his household regardless of whether that person is a co-applicant.
Eligibility for Chapter 12 may also be extended to partnerships or corporations under certain conditions, including that more than 80 percent of the value of corporate assets must be related to the farming or fishing operation; more than half of the equity in the business must be owned by one family; family members must run the business; stock in the business may not be traded publicly; and the business must meet the debt ceiling standard.
Just a few hundred individuals and businesses file Chapter 12 bankruptcy each year: in 2016 there were 459, in 2015 there were 357, and in 2014 there were 394, down from a high of 582 in 2012.
In order to file for bankruptcy, an individual or couple with overwhelming debt must document his financial hardship with the clerk of the U.S. District Court bankruptcy division in his home state. A trustee is named to the case to usher the individual through the process and ensure that the law is adhered to.
When a farmer or fisherman seeks bankruptcy protection under Chapter 12, an automatic stay is triggered, limiting collections on all debt, including personal or household accounts not directly related to the business.
After a meeting of creditors, the farmer or fisherman begins making debt payments according to a court-approved plan that lasts a minimum of three and as many as five years. The funds, the difference between income and necessary expenses, are turned over to the trustee on the case, who in turn pays the creditors.
Under this type of bankruptcy, those who hold secured debts must receive at least the value of the collateral promised in exchange for the credit or debt, allowing the remaining balance to be discharged as unsecured debt in a process called "cramming down" debt. Creditors are ranked according to priority of payments, with taxes and court fees at the top of the list. Secured debts are highest priority, with consumer debt like credit cards a lower priority. Some types of debt cannot be discharged through bankruptcy, including court-ordered child support, court-ordered restitution for personal injury related to OUI, and student loans.