Many farmers rely on their livestock and crops to provide a livable income for their families but are not sure how to address the growing debt from their farm practices? Bankruptcy is always an option, but it’s an option most farmers avoid due to misconceptions of what bankruptcy entails for family farmers and fisherman.
In reality, filing for bankruptcy as a farmer can help you keep your assets, like livestock, while restructuring your business and paying your debts. It might sound too good to be true, but according to United States Courts, it is the typically procedure for farmers.
Removing barriers for farmers
Despite popular belief, there are multiple forms of bankruptcy depending on what you are filing for. farmers or fisherman with regular annual incomes. It lets distressed family farmers and fisherman create a plan to repay all or part of their debt.
Chapter 12 is uniquely designed for family farmers because it is more streamlined and less expensive than chapter 11 or 13 of the Bankruptcy Code, but you have to establish that most of your debt is farming-related and that you make your money through your farming operation.
In most cases, the plan lasts three years unless the courts approve a longer period. If there are any claims for child support or alimony, the plan must be for five years unless the plan proposes to pay 100 percent of the claims.
Filing for bankruptcy under chapter 12 allows the filer to keep its assets, including livestock, while it is in bankruptcy. Another benefit of refiling is the filer is protected from any collection activity from creditors, including repossession or foreclosure.
Declaring bankruptcy under chapter 12
There is specific criteria to file for Chapter 12, depending on if you are “an individual” or “a corporation.” The criteria for an individual or an individual and spouse includes:
- Must engaged in a farming operation or commercial fishing operation
- The total debts of the operation must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation)
- Fifty percent of a farmer’s debt or 80 percent of a fisherman’s debt most be related to their operation
- More than 50 percent of the gross income of the filer must have come from the farming or commercial fishing operation
The criteria for a corporation or partnership are:
- More than one-half of the stock or equity in the corporation must be owned by one family or by family and its relatives.
- The family must conduct the farming and fishing operation.
- More than 80 percent of the corporation’s value must come from fishing or farming operation.
- At least 50 percent of a farming operation or 80 percent of a commercial fishing operation’s total debt must be related to its operation.
- If the corporation issues stock, the stock cannot be publicly traded.
If you meet the criteria in one of these categories, you can meet with a financial advisor to discuss the possibility of filing for bankruptcy and the best options for your farming operation.