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Understanding Chapter 12 bankruptcy and how it helps farmers

If you’re a financially struggling farmer, it may be difficult to understand exactly how the bankruptcy process works. There is Chapter 7, 11, 12 and 13 bankruptcy, each with their own requirements for filing. Often family farms find that Chapter 12 is the most advantageous for them when filing, but Chapters 11 and 13 can sometimes also be appropriate.

It’s important to think over which type of bankruptcy filing is right for you because it can save both time and money. Here is a brief overview of the three most common types of bankruptcy filings for business owners:

  • Chapter 11: Primarily used by businesses.
  • Chapter 12: Available only to farmers and fishermen.
  • Chapter 13: Can be used by individuals and some sole proprietorships.

Chapter 12 is different from the rest because it is specifically tailored to the needs of farmers who are seeking to file for bankruptcy. It was originally added to the Bankruptcy Code in 1986 as a temporary measure but was made permanent in 2005. Filing for Chapter 12 is a less complex and usually less expensive option for those who can take advantage of it.

Why it’s often better than Chapter 11

Chapter 11 filings are for companies or corporations and allow them to stay in operation during the proceedings, as does Chapter 12. The downside of filing for Chapter 11 is that it is a complex process and is considered the most expensive.

If your business falls within the debt limits of Chapter 12, you can remain in business and usually pay less than you would filing for Chapter 11.

Why it’s often better than Chapter 13

Chapter 13 is intended more for wage-earning workers versus a farmer who is operating an entire farm. The debt allowances for 13 are less than 11 and 12 and may not be enough for a large agricultural operation.

Chapter 12 allows business entities to file for bankruptcy and has higher debt allowances.

Is Chapter 12 right for you?

Carefully consider all the options available to you before making a decision. You may benefit the most by discharging your debts through a Chapter 12 bankruptcy filing. The sooner you do, the sooner you can be debt-free and ready for a fresh start.

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