Farm Bankruptcy Act
Chapter 12 of the U.S. Bankruptcy Code establishes a specialized procedure for family farm operations. The special provisions are designed to allow a family farm to remain in operation while providing judicial protection and intervention to assist the owner of the enterprise in developing a meaningful course of action to resolve debt issues.
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Function
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The function of a Chapter 12 bankruptcy is to permit a farmer the ability reorganize operations and restructure debt. The heart of a Chapter 12 bankruptcy is the development of a plan through which the farmer repays obligations to creditors over a two- to five-year period of time.
Requirements
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In order to qualify for a Chapter 12 bankruptcy, a farmer must meet a set of specific requirements set forth in the U.S. Bankruptcy Code. The most fundamental requirement is that an individual or a husband and wife are engaged in farming. Additionally, at least 50 percent of the gross income for the individual or a husband and wife must be generated from the farming operation. The maximum amount of debt cannot exceed $3,792,650 as of 2010.
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Misconceptions
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The most common misconception is that a Chapter 12 bankruptcy applies to all farming operations. A corporate farm operation does not fall within the parameters of a Chapter 12 bankruptcy proceeding. Rather, a corporate farm enterprise files either a Chapter 7 or a Chapter 13 bankruptcy, the same types of bankruptcies available to all other types of corporate enterprises.
Benefits
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The benefits of a Chapter 12 bankruptcy include the fact that these provisions are designed to assist a farm to remain in operation. A Chapter 12 proceeding permits a farmer the ability to reorganize operations, restructure debt, and pay off obligations to creditors over the course of between two to five years.
Alternative
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If paying off creditors over the course of up to five years and reorganizing farm operations will not reasonably result in returning the enterprise to profitability, another alternative exists in the U.S. Bankruptcy Code. A farmer can seek a Chapter 7 bankruptcy. The Chapter 7 process permits a farmer to wind down operations and receive a discharge of most if not all of the outstanding liabilities to creditors.
Expert Assistance
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Because of the complexity of bankruptcy and the unique provisions of a farm bankruptcy, retaining the services of a lawyer that specializes in Chapter 12 cases is a wise course. Particularly in states with a higher percentage of family farms, including jurisdictions like Nebraska, Iowa, Kansas, the Dakotas and elsewhere in the U.S., Chapter 12 specialists can be found. Contact information for local and state bar associations, groups that maintain attorney directories, is available through the American Bar Association:
American Bar Association
321 N. Clark St.
Chicago, IL 60654-7598
312-988-5000
abanet.org
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References
Resources
- Photo Credit farm image by Angie from Fotolia.com
