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Simple English definitions for legal terms
Chapter 12 bankruptcy
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A quick definition of Chapter 12 bankruptcy:
Chapter 12 bankruptcy is a type of bankruptcy that helps family farmers and fishermen who have regular income to get relief from their debts. To qualify, the debtor must not owe more than a certain amount and a certain percentage of their debts must come from farming or fishing. In a chapter 12 bankruptcy, the debtor can continue to operate their farm or fishery business while they work to pay off their debts. Unlike other types of bankruptcy, creditors do not get to vote on the plan and there is no absolute priority rule. Chapter 12 is similar to chapter 13 bankruptcy, but it gives greater rights and powers to the debtor. This type of bankruptcy was created because farmers and fishermen have unique vulnerabilities to economic downturns and the original bankruptcy laws did not provide them with enough protection.A more thorough explanation:
Chapter 12 bankruptcy is a type of bankruptcy that provides relief to family farmers and family fishermen with regular income. It allows them to reorganize their debts and keep their farms or fishing businesses while treating their creditors fairly. To qualify for chapter 12 relief, the debtor must not owe more than the statutory limits prescribed by the Code, and a certain percentage of the debtor’s debts must arise out of farming or commercial fishing operations.
Chapter 12 is similar to chapter 13 bankruptcy in that the debtor can shield their assets from creditors and continue to operate their farm or fishing business throughout the case. However, there are key differences between the two, as Congress sought greater rights and powers for chapter 12 debtors than under chapter 13. For instance, chapter 12 debtors in possession have all the rights and powers of a trustee serving in a case under chapter 11, including operating the debtor’s farm or commercial fishing operation.
Chapter 12 bankruptcy was created in 1986 because Congress concluded that chapter 11 was not an effective avenue for bankruptcy relief for insolvent farmers. Before chapter 12, farmers had no added protections in the bankruptcy code, and most farmers filed under chapter 11 to reorganize their debts, which often had insurmountable barriers to a farm reorganization. Chapter 12 provides specially tailored bankruptcy relief to farmers and fishermen because of the unique vulnerabilities of farmers to economic downturns.
Example: John is a family farmer who is struggling to pay his debts. He owes $500,000, and 80% of his debts arise out of his farming operations. John qualifies for chapter 12 relief because he meets the statutory limits and the percentage of his debts arising out of farming operations. He can reorganize his debts and keep his farm while treating his creditors fairly.
Example: Mary is a family fisherman who is struggling to pay her debts. She owes $700,000, and 70% of her debts arise out of her fishing operations. Mary qualifies for chapter 12 relief because she meets the statutory limits and the percentage of her debts arising out of fishing operations. She can reorganize her debts and keep her fishing business while treating her creditors fairly.