Congress amended the bankruptcy law in 1986 to create a new bankruptcy remedy specifically for farmers and ranchers, known as Chapter 12.\u00a0 Prior to that, farmers and ranchers were forced to reorganize under Chapter 11, which is really designed for non-farm businesses, or file under Chapter 13, which is primarily intended for individuals with consumer debt.\u00a0 Chapter 12 was a hybrid between the two other reorganization chapters, and included the best of both.\u00a0 Especially important was the ability of farmers and ranchers to restructure long term debt, including mortgages secured by a homestead, which could not be done under Chapter 13.\u00a0 The problem with Chapter 12 was that Congress created it as a \u201ctemporary\u201d chapter to the bankruptcy law, intending it to expire or \u201csunset\u201d after a few years.\u00a0 However, each time that Chapter 12 was about to expire, it was extended again by Congress, but still on a temporary basis.\u00a0 Finally, in 2005, Congress made Chapter 12 a permanent part of the bankruptcy\u00a0code.<\/p>\n
So how does Chapter 12 work?\u00a0 First, the person filing must be a \u201cfamily farmer\u201d as defined by the law, meaning that the debtor must be a farmer or rancher with at least\u00a0 50 per cent of the debt arising out of the farming operation, and with at least 50 per cent of the debtor\u2019s gross income for the preceding taxable year being from the farm or ranch operations.\u00a0 If those requirements are met, the farmer or rancher can file a Chapter 12 petition, and must file a Chapter 12 plan of reorganization within 90 days of filing the bankruptcy petition.\u00a0 A farm corporation or partnership will be eligible to file a Chapter 12 case if it meets four specific conditions. First, at least 50 percent of the stock or equity of the corporation or partnership must be held by one family, with that family conducting the farming operation. Second, more than 80 percent of the value the corporation or partnership\u2019s assets must be related to the farming operation. Third, the aggregate debts must not exceed $3,544,525 with not less than 50 percent of that arising from its farming operation. As with an individual, the $3,544,525 debt ceiling is automatically adjusted every three years to reflect any change in the Consumer Price\u00a0Index.<\/p>\n
The Chapter 12 Plan is essentially a restructuring of existing debts.\u00a0 For example, as to secured debt, the plan can propose to pay the value of collateral rather than the full debt if the collateral (property securing the debt) is less than the amount of the debt.\u00a0 If a tractor is worth $25,000.00, but has a $35,000.00 debt, the plan can propose to pay the value of $25,000.00, with the $10,000.00 difference becoming an unsecured debt.\u00a0 The plan can also modify the length of debt repayment, extending it beyond the amount called for in the original note.\u00a0 The plan can also modify the interest rate.\u00a0 As to unsecured debt, interest stops on filing and doesn\u2019t have to be paid.\u00a0 In some cases, all or part of the unsecured debt can be discharged after the plan is\u00a0 complete.\u00a0 The frequency of payments can also be adjusted.\u00a0 For example, if payments are scheduled by a creditor\u2019s note to be made before harvest, the plan can modify that requirement to make the payment come due after\u00a0harvest.<\/p>\n
Plan payments are made to the Chapter 12 trustee during the first three to five years of the plan.\u00a0 The trustee then distributes those payments to creditors pursuant to the plan provisions.\u00a0 After the three to five year period, the plan payments terminate and unsecured debts are discharged.\u00a0 Long term secured debts are then made directly by the debtor to secured\u00a0creditors.<\/p>\n
Bankruptcy is a federal law and cases are filed in bankruptcy court, which is part of the federal court system.\u00a0 There are three bankruptcy court locations in Kansas:\u00a0 Topeka, Wichita, and Kansas City.\u00a0 The person filing Chapter 12 will have to attend a meeting of creditors, known as a \u201c341 meeting,\u201d about 30 days after the case is filed.\u00a0 This meeting is with the trustee, and although creditors can attend, they are not required to.\u00a0 The 341 meeting is held in the city where the case is filed:\u00a0 Topeka, Wichita, or Kansas City, as appropriate.\u00a0\u00a0 After the plan is filed, the court sets a hearing to confirm or approve the plan.\u00a0 If creditors object to plan provisions, they must file written objections to the plan.\u00a0 The court will then\u00a0 hear and consider those objections as part of the confirmation process.\u00a0 Once the plan is confirmed, it then is binding on all creditors, and supercedes any provisions in promissory notes and security\u00a0agreements.<\/p>\n
<\/p>\n","protected":false},"excerpt":{"rendered":"
Congress amended the bankruptcy law in 1986 to create a new bankruptcy remedy specifically for farmers and ranchers, known as Chapter 12.\u00a0 Prior to that, farmers and ranchers were forced to reorganize under Chapter 11, which is really designed for non-farm businesses, or file under Chapter 13, which is primarily intended for individuals with consumer […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-10","post","type-post","status-publish","format-standard","hentry","category-bankruptcies"],"aioseo_notices":[],"_links":{"self":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/10","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/comments?post=10"}],"version-history":[{"count":5,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/10\/revisions"}],"predecessor-version":[{"id":90,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/posts\/10\/revisions\/90"}],"wp:attachment":[{"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/media?parent=10"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/categories?post=10"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/www.paulpost.com\/blog\/wp-json\/wp\/v2\/tags?post=10"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}