Chapter 12

In many respects, Chapter 12 and Chapter 13 are identical: both chapters require the debtor to have a regular income; a repayment plan is submitted to the court, trustee, and creditors that applies a strict budget and is based on disposable income determined by gross income and personal and farm expenses; plan payments are made over 3 to 5 years, resulting in debtors repaying between 0% and 100% of unsecured debts; debtors can reconcile non-exempt assets that would otherwise be liquidated, and many secured debts can be “written down” to the asset value.

And similar to both chapter 7 and chapter 13 matters, chapter 12 debtors must obtain credit counseling before filing and attend a 341 meeting of creditors before a trustee.

But, for many farmers in Colorado, chapter 12 is advantageous for several reasons. Unlike chapter 13, personal bankruptcy, individuals or corporations/partnerships can file for chapter 12. Individual or married debtors must meet the following requirements:

  • The debtor is engaged in an agricultural operation,
  • The combined limits for secured and unsecured debts are much higher than in chapter 13 – $3,544,525 as of 2011 (compared to only $1,081,400 for secured debts and $360,475 in 2011 for unsecured debts in chapter 13) – each of these numbers is adjusted for inflation,
  • At least 50% of total debts must be agricultural-related, and
  • At least 50% of the debtor’s gross income in the last two tax years (before the filing) must be agriculture related.

A corporation or partnership will be eligible for Chapter 12 if it meets the following requirements:

  • More than 50% of the stock or shares of the business or partnership are owned by a family or its relatives,
  • The family or the family’s relatives are engaged in farming,
  • More than 80% of the assets of the enterprise or partnership are related to the farm,
  • The total debts of the business or association must be $3,544,525 (in 2011) or less,
  • At least 50% of the debts of the firm or partnership are farm-related, and
  • No debtor company can be publicly traded on a pouch.

An individual or corporate/partnership debtor is ineligible for chapter 12 relief if a prior bankruptcy petition was dismissed within the last 180 days for the debtor’s willful failure to appear in court or obey a court order.

Ineligibility for relief will also result if the debtor’s prior bankruptcy was voluntarily dismissed after creditors attempted to recover the property secured by the Colorado Bankruptcy Court.

Although both chapter 12 and chapter 13 allow for a “cram down” of secured debts, the former more generously allows a mortgage on a primary residence to be modified to fair market value and does not mandate a motor vehicle loan cram down to 910 days or more.

Another difference from chapter 13 is that chapter 12 allows debtors to confirm a plan without consistent monthly income, given the seasonal nature of farming operations.

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