The Advantages of Chapter 12 Bankruptcy

There is a tendency to throw all the varied kinds of bankruptcy into one pile when considering whether it may be appropriate to file for bankruptcy protection. This is a dangerous misconception because there are many important differences from one chapter of the United States Bankruptcy Code to the next. Moreover, certain forms of bankruptcy are reserved for individuals and others are reserved for businesses. The failure to properly choose the right form of bankruptcy protection for your specific situation can have an adverse effect on not only the approval or rejection of your claim.

It can also result in the unnecessary loss of assets and may require you to pay more to your creditors than you would if you had pursued the most fitting type of bankruptcy for your circumstances. For family farmers, ranchers, and fishing companies the best option in the face of serious financial distress is typically Chapter 12. Chapter 12 was introduced into the Bankruptcy Code in 1986 as it became increasingly apparent that economic circumstances had made the prospect of maintaining fiscal solvency increasingly grimmer for small family owned farming operations.

Features of Chapter 12 Bankruptcy

The primary distinguishing features of Chapter 12 bankruptcy are those that are designed to restrict its provisions to parties that are actively engaged in small scale agricultural endeavors. For example, the debts that are included in a proposed bankruptcy plan must have been at least 80 % attributable to the operation of the farm. Additionally, to establish that the farm is the primary source of a filing party’s income, more than half of the income in the previous year must have been gained through revenue generated by the farm.

There are a number of reasons that you may prefer the specific provisions of Chapter 12 bankruptcy to the others for which your claim may be eligible. Some of these are:

  • The lack of a means test (such as that required for Chapter 7 bankruptcy)
  • No credit counseling is mandated for a filing party
  • Assets are not compelled to be sold to satisfy debts outstanding to creditors
  • Disclosure statements do not have to be filed

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