Chapter 12 bankruptcy is exclusively offered for family farmers and fishers. It allows these individuals to restructure their finances, save their business, and avoid court-ordered liquidation or foreclosure. Chapter 12 works similarly to Chapter 13 bankruptcy where you create a repayment plan that the courts approve – and you then follow.
Part of filing your repayment plan is the confirmation hearing. The hearing is where the court reviews your plan, your creditors can speak against it, and the court either denies or approves the repayment plan so you can start getting back on track.
How Pasco Farmers and Fishers Can Utilize Chapter 12
Family farmers and family fishers may qualify for Chapter 12 as long as they have regular annual income.
The business must be financially distressed, and a plan to repay all or portions of the business’s debts must be submitted to the court. Under the Chapter 12 repayment plan, the debtor will make installments to their creditors over the course of three to five years. The plan must have payments over a three-year period with only the court approving anything longer than the three-year mark.
The law prohibits any plan from extending past the five-year mark. Therefore, if a business cannot submit a plan that repays their debts within a maximum of five years, the plan is rejected.
Initially, farmers and fishers would have to file for Chapter 11 or 13, but these created barriers for those looking to reorganize. Chapter 12 is streamlined and does not require the same complicated restructuring as Chapter 11. Furthermore, Chapter 13 was designed for smaller volumes of debt while fishermen and farmers tend to carry higher debts.
To qualify for Chapter 12, farmers or fishermen must have regular annual income. The annual income must be stable so that the debtor can make payments through the Chapter 12 program. Seasonal income is allowed under this arrangement, but only if the individual can show that the “seasonal” income supports them year-round.
Qualifying for Chapter 12
Family fishers and farmers will fall into two categories:
- Individual or couple
- Corporation or partnership
Under the first category, the qualifications become complicated and require farmers or fishermen to:
- Prove they are engaged in a commercial farming or fishing business;
- Show that the total debts do not exceed $4,153,150 for farming or $1,924,550 for fishing;
- Show that 50 percent (farming) or 80 percent (fishing) debts must be exclusive to the business; and
- Prove that more than 50 percent of the gross income comes from their farming or fishing operation.
What Is a Confirmation Hearing?
45 days after submitting the repayment plan to the courts, the judge will host a confirmation hearing. The confirmation hearing determines if the plan meets the standards under the Bankruptcy Code and also whether the judge feels the repayment plan is feasible for the farmer or fisher.
Creditors receive a 20-day notice and can appear at the hearing to object to the repayment plan. Typical objections from creditors are that the plan offers less than what the creditors deserve in repayment than if the debtor liquidates, or that the plan does not commit all disposable income from the debtor within that three, four, or five-year span.
Do You Need Representation at a Confirmation Hearing?
Ideally, you should hire a bankruptcy attorney from the start with your Chapter 12 plan. An attorney can review your financials and determine if you are a candidate for Chapter 12; then draft a repayment plan that satisfies Bankruptcy Code requirements.
Furthermore, having an attorney present during your confirmation hearing is key. An attorney can fight off arguments from creditors about your repayment proposal.
What Happens If the Court Approves the Plan?
If the court does confirm the Chapter 12 plan, a trustee will begin distributing funds received per the plan. Over the course of the three to five years in that plan, the trustee will oversee repayment to creditors, monitor the financials of the fisher or farmer’s business, and ensure all creditors and the debtor follow obligations in that plan.
What Happens If the Plan Is Not Confirmed?
Sometimes, the judge may not confirm a plan. If they do not, the debtor can either file a modified plan for confirmation or convert their case to liquidation by filing for chapter 7.
If there is no confirmation or action taken, then the case is dismissed. The court can still allow the trustee to keep some of the funds received during the process and return a portion to the creditor.
Tips for Making a More Likely to Succeed Confirmation Repayment Plan
No one wants to spend more time in court than necessary. One way to avoid multiple hearings and filings is to create a repayment plan the court will confirm. Some ways to do this include:
- Be Realistic: Do not promise to make payments that you cannot follow through with. Consider your seasonal income, issues that might impact your income, and then create a plan that you can stick to. Failing to follow through on your repayment plan has dire consequences.
- Hire an Attorney: An attorney that has experience with Chapter 12 is best. Your attorney not only drafts a plan that satisfied the code requirements but can help you avoid the pitfalls of an unrealistic plan.
- Unsecured Claims: Unsecured debts do not have to be paid in full, but you must pay at least what the creditor would have received if you liquidate your assets. Therefore, make sure the minimum payment satisfies the minimum they would receive in Chapter 7. Otherwise, the courts may approve a creditor’s objection.
Do You Want to File for Chapter 12? Consult with an Attorney First
Chapter 12 is an ideal solution for farmers and fishers who want to keep their business and get out from under the burden of creditors.
If your family business is struggling, you may qualify for Chapter 12 restructuring. To explore your options, speak with an attorney from Hames, Anderson, Whitlow & O’Leary. We can review your farm or fishing operation’s situation and create a repayment plan that not only satisfies the courts but improves your chances of success.
Schedule a no-obligation consultation today at 509-586-7797 or ask us a question online.