The knowledgeable Chapter 12 bankruptcy attorneys of Sasser Law Firm have handled more than 9,000 bankruptcy cases for individuals and businesses in North Carolina. We understand how hard times can devastate a family farm, and we’re here to help you get your finances back on track.
Call us today at (919) 319-7400 or contact us online for your free initial consultation to learn more about how we can make a difference in your Chapter 12 bankruptcy case.
What Bankruptcy Chapter Should Farmers File for in North Carolina?
Congress created Chapter 12 of the Bankruptcy Code specifically to address the needs of “family” farmers and fishermen, who often require more flexibility due to their industries’ seasonal and sometimes unpredictable nature. Eligibility requirements for Chapter 12 bankruptcy severely restrict who may file, but those who can are entitled to special benefits that do not apply to different chapters.
As with Chapter 13, Chapter 12 farm bankruptcies allow filers to keep ownership of their assets while making regular payments over time per an approved debt repayment plan.
Benefits of filing for bankruptcy under Chapter 12 include:
- You are permitted to keep farming assets such as machinery, equipment, livestock, land, crops, and crop inventories.
- Chapter 12 has a higher debt “ceiling” than Chapter 13, which is intended for individuals and married couples with smaller debts.
- Filing for Chapter 12 is can be quicker, less complicated, and less expensive than filing under Chapter 11.
- Under Chapter 12, you are permitted to adjust your debt repayment plan, so the bulk of your payments occur after the harvest season is complete.
- As soon as you file under Chapter 12, your creditors are required to cease all debt collection activities against you and your co-debtors immediately.
Understanding Chapter 12 Bankruptcy
The protections available under Chapter 12 bankruptcy have only been available to family farmers and fishermen since 1986. Eastern District of North Carolina Bankruptcy Judges Thomas M. Moore and A. Thomas Small helped draft the legislation.
Before then, the U.S. government used a patchwork of short-term laws and provisions to offer temporary aid to farmers in dire financial straits. Famers in debt often had to file under Chapter 11 or chapter 13 which were not always well suited to the issues facing farmers.
Then, in the early 80s, the farming industry suffered a staggering debt crisis due to a massive decline in the price of consumer goods. In response, Congress enacted the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act to add Chapter 12 to the U.S. Bankruptcy Code in 1986.
Chapter 12 was originally intended to be a temporary relief measure as well, with an expiration date set for 1993. However, Congress repeatedly extended this expiration deadline before ultimately making the law permanent in 2005.
Because Chapter 12 bankruptcy was specially designed to meet the needs of smaller farms and fisheries, those who file are subject to several strict eligibility requirements. These include limits on amounts and types of debt and minimum percentages of income derived from farming or fishing activities.
Chapter 12 Bankruptcy Eligibility for North Carolina Farms
Although Chapter 12 bankruptcy provides essential relief for farmers and fishermen, the strict eligibility requirements in this chapter make it one of the least common types of bankruptcy. Among more than 682,000 bankruptcies filed throughout the U.S. in 2020, just 589 (0.09 percent) were Chapter 12 bankruptcy cases.
Farms owned by individuals or corporations are eligible to file under Chapter 12. An individually-owned family farm only qualifies if:
- An individual or married couple owns the farm, and the owner or their relatives are actively involved in commercial farming operations. Unmarried, individual business partners may not file jointly together.
- At least 50 percent of the farm’s gross annual income is derived from commercial farming operations.
Corporations and legal partnerships that own farms may also be eligible to file under Chapter 12 in limited circumstances. Requirements for corporations include:
- At least half of the stock or equity for the farm must be owned by a single-family or group of relatives, and company stocks may not be publicly traded.
- Members of a single-family or a group of relatives must be on the staff working at the farm. Farms that are owned or managed remotely do not qualify.
- At least 80 percent of the company’s overall value must be derived from farming-related assets, such as equipment or buildings.
- At least 50 percent of the company’s total debts must be from farming-related operations.
Other Chapter 12 eligibility considerations that apply to both individually-owned and corporate-owned farms include:
- You must not have appeared in court for a separate bankruptcy matter, had a bankruptcy claim dismissed, or failed to follow any court orders within the past 180 days.
- You must attend court-ordered credit counseling classes within 180 days before you file under Chapter 12.
- You must earn a regular annual income, which may be seasonal, from your farm’s operations.
How to File for Chapter 12 Bankruptcy
To begin your Chapter 12 bankruptcy case, your first step will be filing a voluntary petition for relief with your local court. The court you file with will depend on the location of your farming operation and those who manage it. If you are filing along with your spouse, you may file the initial petition jointly or individually.
When you file, you will be expected to pay specific fees to the clerk of the court. In most farm bankruptcies, you will owe a $200 filing fee and a $78 administrative fee. If you cannot pay $278 at the time of filing, you may request permission to pay the fee in four installments within 120 days.
You will also need to provide specific documents and pieces of information to your Chapter 12 bankruptcy attorney, including:
- Documentation of your debts and creditors or lenders
- The amount of money you have borrowed from each creditor, as well as the purchases you made with their loan
- Documentation of your annual income, including the frequency of your earnings
- Documentation of your farming properties and assets
- Proof of monthly farming expenses, including property taxes, utilities, transportation costs, fertilizer, feed, etc.
Chapter 12 Bankruptcy Process in North Carolina
After filing your initial bankruptcy petition, you can continue your usual farming operations while your case progresses. The court will appoint a bankruptcy trustee to monitor your case, confer with the court, and manage payments to your creditors.
Within 21 to 35 days of filing, the Chapter 12 trustee will schedule a “meeting of creditors,” during which the trustee and your creditors may question you under oath. You are required to attend this meeting and answer questions about your finances and repayment plan. Normally the meeting of creditors is held in person but during the time of COVID, meetings are done over the telephone. A Chapter 12 bankruptcy attorney can help you protect your rights at this stage and throughout the entire process.
Within 90 days of filing, you must propose a repayment plan that addresses any outstanding, farm-related debts. Your plan must last at least three years unless you can demonstrate your ability to pay off all of your debts sooner. Repayment plans may also last as long as five years with court approval. A confirmation hearing on the plan must be concluded within 45 days of when the plan is submitted unless there is “cause” to extend this deadline. One of the requirements for plan confirmation is that unsecured creditors receive at least as much as would have been paid to that creditor in a chapter 7 case.
Once the bankruptcy court confirms your plan, you will be required to make plan payments to the Chapter 12 trustee until the plan is complete. The trustee is paid a commission based on the amount disbursed to creditors.
After your three- to five-year repayment plan is complete the court will grant you a discharge, and eligible debt obligations can be wiped clean.
Contact a Chapter 12 Bankruptcy Attorney in Cary, NC Today
Our Chapter 12 farm bankruptcy attorneys at Sasser Law Firm have more than 20 years of experience focused exclusively on bankruptcy law.
For a straightforward and honest assessment of your circumstances, call us at (919) 319-7400 or contact us online to get started with your free initial case review.
