Chapter 12 Bankruptcy - Debtors and Trustees


In the United States Bankruptcy Code, Chapter 12 provides special guidelines designed for bankruptcy filings involving the reorganization of family farms and fishing operations. While Chapter 12 bankruptcy cases are modeled closely after those falling under Chapter 13, there are important differences. One of the main differences is that the amount of debt in question can be significantly higher under Chapter 12, allowing it to be a much more legitimate option for farming and fishing businesses.

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Determining eligibility of an individual for filing for Chapter 12 Bankruptcy involves many factors. The person must not have a debt that exceeds $3,544,525. At least half must have arisen out of the operation of their fishing or farming operation. This does not include debts on a homestead, unless they are determined to have directly been involved with running the farm. Also, in the year before the filing, fifty percent or more of the individual's total income must have come from farming or fishing.

In addition to these requirements, the person must have a "regular annual income" that is "sufficiently stable and regular enough to enable such family farmer to make payments" required by their bankruptcy plan. The rules for eligibility are slightly different for farming and fishing operations that are corporations or partnerships.

One of the appealing aspects of filing for Bankruptcy under Chapter 12 is that the owner of farming operation is able to retain many of their rights. The farmer will remain in control of the property and is allowed to keep the majority of the authority over how their business is run. If, however, the farm or fishing operation owner has committed fraud or serious mismanagement of their business, the trustee appointed to the case may take the reigns of the farm.

In addition to taking control of the business under certain circumstances, the Chapter 12 trustee serves a variety of important functions. These responsibilities cover almost all portions of the bankruptcy process. Early on, the trustee is in charge of investigating the financial actions of the debtor, determining if the farm will be able to continue business, valuating assets, and objecting to improper claims by creditors. The trustee is also charged with receiving the debtor's payments, providing information to parties with a stake in the case, making sure the debtor is following their Chapter 12 plan, and recommending that the debtor be discharged.

The relationship between debtor and trustee can be interesting, to say the least. Still, it is a necessary part of a Chapter 12 bankruptcy case, and both parties play very important roles.


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