Statistically, some types of bankruptcy are far more common than others. Chapter 12 bankruptcy is one of the least common forms of bankruptcy, but Florida sees more Chapter 12 bankruptcy filings than many other states.
Chapter 12 bankruptcy is a specialized form of bankruptcy that is only available to professional fishermen and farmers. Agricultural professionals struggling with high levels of debt may turn to Chapter 12 bankruptcy as it offers unique benefits when compared with other, more common types of bankruptcy.
What are some of the features that farmers find so appealing about Chapter 12 proceedings?
Retaining control over farm operations
In certain types of bankruptcy, a court-appointed trustee makes a lot of the decisions about assets and business operations. For farmers who may know their land and their niche of agriculture better than most, allowing a trustee to take control over their operations could undermine whatever benefits they might derive from bankruptcy. A successful Chapter 12 bankruptcy allows a farmer to continue doing what they must with their assets throughout the bankruptcy process and afterward. They have full control of farm operations, which is typically preferable to an arrangement where a trustee oversees everything.
Cramming down certain debts
Chapter 12 bankruptcy is the only type of bankruptcy in which cramdown is possible. Most of the time, filers have to reaffirm existing secured lines of credit. They may be able to negotiate some terms, but lenders still largely control that process. In a cramdown scenario, farmers can reduce their secured debts by eliminating fees, interests and other secondary costs. They may only have to worry about a balance based on the actual value of the assets used to secure the loan.
Establishing a structured repayment plan
In a Chapter 12 bankruptcy, filers can negotiate with lenders to establish a repayment plan. This plan can include both secured and unsecured debts. The filer makes a series of monthly payments that last for between three and five years. They can likely discharge the remaining balance on eligible unsecured debts. Doing so may make it easier for them to continue making necessary payments on their secured debts.
Pursuing Chapter 12 bankruptcy requires careful preparation, which often means bringing in outside assistance. Those who have guidance throughout the process can maximize the benefits that they derive from what can be a lengthy and complex process.
