CHAPTER 12 BANKRUPTCY FOR FAMILY FARMERS
Are you a farmer? If so, you may have the alternative to choose a Chapter 12 Bankruptcy for family farmers, instead of a Chapter 7, 11, or 13. A Chapter 12 generally allows the farmer to remain in possession and control of the farming operation.
WHO QUALIFIES AS A
CHAPTER 12 FAMILY FARMER?
Chapter 12 of the Bankruptcy Code is not just for farmers and includes both family farmers and family fishermen. For our purposes, we will deal with qualifying as a family farmer. A “family farmer” with regular annual income may file a Chapter 12. The regular annual income requirement is broad and generally not a stumbling block to qualifying for a Chapter 12. You just need enough income to make Chapter 12 plan payments.
Also, Chapter 12 is not limited to an individual. An individual’s spouse, partnerships, and corporations may be deemed a family farmer. There are different eligibility requirements for individuals and spouses, than there are for corporations and partnerships. This article deals with individuals and spouses. Corporations and partnerships eligibility will be considered in a future blog.
Individuals and spouses must pass a four-part test to qualify as a family farmer for Chapter 12. Those four parts are:
ENGAGED IN A FARMING OPERATION
The first requirement is that the individual or individual and spouse must be engaged in a farming operation. The Bankruptcy Code definition of a farming operation includes farming, soil tillage, dairy farming, ranching, producing or raising crops, livestock, and poultry. Other agricultural type operations may or may not qualify.
NO MORE THAN $10,000,000 IN DEBT
The second prong to satisfy is the amount of debt. As of this writing, the aggregate debts must not exceed $10,000,000.
MOSTLY FARM DEBT
The third requirement is the debt must be mostly farm debt.This test requires that not less than 50 percent of the farmer’s noncontingent, liquidated debts on the date the case is filed (excluding a debt for the principal residence of the debtor unless such debt arises out of the farming operation) must arise out of a farming operation owned or operated by the farmer or the farmer and spouse. Hence, to include the homestead mortgage in the debt calculation you must show it arises out of the farming operation.
MOSTLY FARM INCOME
The fourth and final prong to satisfy is based on recent farm income at the time of filing. At the time the Chapter bankruptcy case is filed, the farmer must have received at least 50 percent of his or her gross farm income from the farming operation during the first tax year immediately preceding the tax year the case is filed, or during each of the second and third tax years preceding the tax year the case is filed. So, if the farmer stopped farming during the prior year he or she may still qualify. Timing the filing may be critical in some situations.
This summarizes the individual qualifications, and each case must be carefully analyzed. The good news is that Congress has carved out special bankruptcy relief to qualifying farmers.
Why not have your financial situation considered by an experienced bankruptcy attorney and former Trustee for the U.S. Bankruptcy Court? Call or contact Martin Long at LONG & LONG P.C.now at 303-832-2655, or www.denverbankruptcylawyer.net.
LONG & LONG P.C.