Legal Definitions - Chapter 12

Chapter 12 refers to a specific type of bankruptcy protection available under the United States Bankruptcy Code, designed exclusively for "family farmers" and "family fishermen" with regular annual income. It provides a pathway for these individuals or entities to reorganize their finances and debts through a court-approved payment plan, rather than being forced to sell off their assets (liquidation).

Under a Chapter 12 plan, a court-appointed trustee oversees the process. The farmer or fisherman proposes a plan to repay their creditors over a period, typically three to five years, using a portion of their regular income. This allows them to continue operating their farm or fishing business while working towards financial stability and repaying their debts under court supervision.

Here are some examples illustrating how Chapter 12 applies:

• Example 1: Agricultural Market Downturn

  The Peterson family has operated a multi-generational hog farm in Iowa. Due to a prolonged period of extremely low pork prices and rising feed costs, they have accumulated substantial debt from their bank loans for equipment upgrades and operating expenses. Despite their best efforts, their income is no longer sufficient to cover all their monthly debt payments, putting their farm at risk of foreclosure.

  How Chapter 12 applies: The Peterson family could file for Chapter 12 bankruptcy. This would allow them to propose a new, more manageable payment plan to the bankruptcy court. Instead of being forced to sell their land or livestock, they could restructure their debts, potentially reducing monthly payments or extending repayment terms, enabling them to continue farming while gradually repaying their creditors under the supervision of a trustee.

• Example 2: Environmental Regulations Impacting Fishing

  The Rodriguez family owns and operates a commercial shrimping business in the Gulf of Mexico. Recent changes in environmental regulations have significantly reduced their allowable catch, and the cost of fuel and boat maintenance has dramatically increased. They are now struggling to make payments on their fishing vessel mortgage and other business loans, threatening the future of their family business.

  How Chapter 12 applies: As "family fishermen," the Rodriguez family would be eligible for Chapter 12 bankruptcy. This legal process would enable them to develop a court-supervised plan to reorganize their business debts. They could propose a more realistic repayment schedule for their boat loan and other creditors, allowing them to continue their shrimping operations and generate income while working toward financial recovery under the protection of the bankruptcy court.

• Example 3: Unexpected Crop Failure and Medical Expenses

  A young couple recently took over their family's organic vegetable farm in upstate New York. After a successful first year, an unexpected and severe hailstorm destroyed a significant portion of their main cash crop. Simultaneously, one of the family members incurred substantial medical bills from an unforeseen illness. These combined financial blows have made it impossible for them to make their scheduled loan payments for farm expansion and equipment, despite having a viable long-term business plan.

  How Chapter 12 applies: Chapter 12 would provide a crucial lifeline for this family farm. It would offer them a legal framework to halt debt collection efforts and propose a realistic repayment plan based on their projected income from future harvests. The court's approval of such a plan would allow them to continue cultivating their farm, manage their medical debt, and eventually recover financially, preventing the forced sale of their land and assets.