\ What is Chapter 12 bankruptcy and who is eligible? | Law Office of Gordon Mosley

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What is Chapter 12 bankruptcy and who is eligible?

There are certain bankruptcy chapters that are well-known to the layperson in Texas and across the country. There are other potential options that many eligible people might not realize can be used. One is Chapter 12 bankruptcy. This is a specific chapter that is available for family farmers or family fishermen who earn a regular annual income from those endeavors. This allows people who meet the criteria to be placed in these categories to use this bankruptcy chapter to deal with financial challenges, a struggling economy, unemployment and stop foreclosure on their home.

With Chapter 12, the debtor is able to propose a plan of repayment of debts to creditors to be paid in three to five years. In some instances, that can be extended. Chapter 12 is meant to eliminate the potential problems that a debtor in this position would face if the only options were Chapter 11 or 13. Chapter 12 does not cost as much and is easier to navigate. Those who are eligible for this program fall into two separate categories. They are -- an individual or an individual and spouse, and a corporation or partnership.

If there is a failure to fit into the first category, for Chapter 12, there must be four criteria met to qualify -- there must be a farming operation or a commercial fishing operation, the total debts whether secured or unsecured must not go beyond $4,031,575 for farmers or $1,868,200 for fishermen, the family farmer must have 50 percent and the family fisherman 80 percent of the debts in a fixed amount -- except for the home -- and must be linked to the business operation and more than 50 percent of the gross income for the prior tax year must have come from farming or fishing.

Since certain areas of Texas are known for farming and fishing, it is unavoidable that some of those who go into these businesses will run into financial trouble. Filing for Chapter 12 bankruptcy can be a useful way to get back on stronger financial ground and keep the business going without having to deal with the other possible bankruptcy chapters that might not be appropriate to the situation. Speaking to a lawyer can help to make the decision on whether Chapter 12 is the right option.

Source: uscourts.gov, "Chapter 12 -- Bankruptcy Basics," accessed on Dec. 8, 2015

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