Chapter 12 bankruptcy is a unique form of bankruptcy designed for agricultural businesses. With a Chapter 12 bankruptcy, farmers who are dealing with debt can look for “cramdown” solutions, which help them reduce their debts significantly by comparing the value of a loan to the current value of a piece of property.
A cramdown is just one of the many benefits of a Chapter 12 bankruptcy. Farmers should know that this form of bankruptcy can help them keep their farms running and profitable, so that they can continue on in this important career.
The benefits of an agricultural bankruptcy
With a Chapter 12 agricultural bankruptcy, you are able to sell or lease your property without needing the approval of the court. You can also potentially have a portion of tax claims associated with the sale of that property discharged in bankruptcy, since it’s an unsecured debt.
Even better, for those who cannot complete a repayment plan due to a natural disaster or illness, there is an option to seek out a hardship discharge. With that, all additional obligations would be eliminated.
Chapter 12 bankruptcy, a cousin of Chapter 11 and Chapter 13
Like Chapter 11 and 13 bankruptcies, Chapter 12 bankruptcy is intended to require a farmer to participate in paying down debts and restructuring the business. Chapter 12 bankruptcy is more flexible than Chapter 13, but it still allows farmers to gain protection against creditors and to reorganize their debts on three- or five-year payment plans.
The limits for this kind of bankruptcy are high. Chapter 12 bankruptcy may be beneficial for farmers who have less than $4,153,150 in debts. At least 50% of those debts need to be from the farming operation, and they need to bring in at least 50% of their gross income from the farming operation (in the previous year).
This is something that could help you if you’re struggling with debt as a farmer. It’s possible that a cramdown or other benefits of a Chapter 12 bankruptcy could help your farming business balance its finances again, so you can move forward more securely in the future.