Famers and fisherman hold an important place in the economy of the USA, still, there was no permanent law for them to declare bankruptcy. Of late, Chapter 12 is introduced for family farmers and family fisherman, who may want to seek bankruptcy law. To know about other Chapters and bankruptcy in the whole log on to Recovery Law Group.
A brief history of Chapter 12
Chapter 12 was introduced by Congress to help farmers and fisherman who were struggling with debts during the emergency in 1986. However, it was a temporary structure that became permanent only in 2005. This law is not so popular and is scarcely employed by people. The lack of popularity is both due to ignorance and rigid eligibility criteria. That’s why in comparison to Chapter 13’s 1.4 million reported cases in 2011, there is only 637 case reported for chapter 12.
What is the basic eligibility for Chapter 12 Bankruptcy?
A person-single or married; corporations or partnership’s that have stable, regular annual income are eligible for filing under Chapter 12 bankruptcy law. The debtor must satisfy the following parameters.
- The debtor must be involved in farming or fishing occupation and must obtain 50% of the gross revenue from it.
- The total debt for the farmers and fisherman must not surpass $4,153,150 and $1,924,550 limit respectively.
- The debt should be because of the farming and fishing occupation and not for personal usages, like house mortgage, etc. 50% of the loan amount must be due to the farming occupation, and in case of the fishing business, 80% of loan must be due to the fishing
In the case of corporates and partnership, the family must singularly own more than 50% of the equity or stock interests, then only its eligible to file bankruptcy under Chapter 12.
The farmers or fisherman can file under chapter 12 when they are not able to pay their loans and are looking for some relief from the debt. The government appoints a bankruptcy trustee who examines the case and reports to the court. The trustee examines the documents, monitors the debtor’s business operations and investigates means and ways to strategize a plan for the repayment.
The payment process in Chapter 12 works like chapter 13. Apart from unusual circumstances, the debtor is allowed a time frame of 90 days from the day of filing to table his repayment plan. The payment plan must be completed within 3 to 5 years. Basically, the loan repayment time frame is 3 years, which can only extend to 5 years if the client is bounded to family obligations like alimony or child support.
Approval of Chapter 12 by the court
Once the petition is filed by the client for acquiring Chapter 12, the court appoints a trustee to analyze the client’s financial status. Based on the report of the trustee the court grants confirmation to the client. The confirmation verdict comes within 45 days of filing the case.
Pointers of Chapter 12 plan
- Execution of payment plan
The client must commit all his disposable income to the trustee. The term ‘disposable income’ in Chapter 12 denotes to the balance amount achieved after deducting the revenue acquired by the client’s fishing or farming occupation, to the sum required to manage business and family expenditures. Once a sum is achieved as disposable income, the trustee employs it to disburse the loan, as per the payment plan. After extracting its fee, the trustee, distributes the remaining disposable income to the creditors.
- Cramming down of secure loans
The debtor has some secured loans to be cleared. After filing the case under Chapter 12, the debtor can cram down his secure loans. The word ‘cram down’ means the debtor can reduce or lower his secured debt on mortgaged articles as per the market value. The debtor must only pay the market value of the collateral pledged article. Any amount excess than that is treated as unsecured loans, which under Chapter 12 the client gets the benefit of paying little or no amount against it. The debtor can take the liberty of stretching the time beyond the term plan to pay his secure loans. The interest in the secure loan is also settled as per the ongoing market rate.
- Discharge of loans
Although the court must investigate the best interest of creditors, it cannot do much for unsecured loan creditors. The case can be treated similarly as the Chapter 7 bankruptcy case of clearing the debt by selling liquid assets. However, any loan amount above that is discharged. Hence the creditors must be satisfied with meager or no payment at all in some cases. The debtor’s unsecured loans can be discharged by the court depending upon their financial situation.
Wrapping the case
Once the judgment is passed the case remains open till the debtor completes his payment to the Chapter 12 trustee. The debtor acquires a discharge, and the case is wrapped up once all the payment procedure is complete. The discharge releases accountability of debtor towards any obligations, even those that may not be within the Chapter 12 plan. However, some obligations like alimony and child support, are non-dischargeable, which the debtor cannot steer clear of. The court can dismiss the case if it does not find strong evidence. The filer can also dismiss the case or file his case under Chapter 7 bankruptcy California. For sound advice on bankruptcy and right solutions for your circumstances contact 888-297-6203 right now.