Operating a family farm or fishing business in California can bring many rewards. You earn a living and do it while working with family. You are your own boss and can decide what is best for the business. The downside is this: family farms and fishing businesses are a lot of work. Sometimes, too, a drought or another significant event can make a farm or fishing business less profitable or put the business in the red completely. When that happens, it can be hard to get back on track.
At DiMarco Warshaw, APLC, our Chapter 12 bankruptcy attorney based in California helps clients who own their own businesses, like farms and fishing operations, file for bankruptcy if it is in their best interests. Contact us at 888-890-5474 to schedule a free initial consultation and to learn whether bankruptcy (like Chapter 12 or another type of bankruptcy) is best for you and your business or whether there is another option more suited for your situation.
What is Chapter 12 Bankruptcy?
Chapter 12 is a voluntary form of bankruptcy for family farmers or family fishermen with “regular annual income” (11 U.S.C. §§ 101(18), 101(19A), 109(f)). It allows farmers and fishermen facing financial hardship to reorganize their debts and create a repayment plan to avoid foreclosure or liquidation.
Some important aspects of Chapter 12 bankruptcy that you should know include:
- Regular, affordable payments. Under Chapter 12, repayments are made to creditors at regular intervals over three to five years.
- Streamlined process. Chapter 12 bankruptcy provides a more streamlined, affordable process than those available under Chapters 11 or 13. This takes into account the economic realities of the agricultural industry, which typically involves more significant levels of debt than a regular wage earner.
- Protection for liquidation. Unlike Chapter 7, a Chapter 12 petitioner is not required to liquidate their assets. It allows them to restructure their debts under a repayment plan while keeping their family farm or fishing operation running.
Originally introduced as an emergency measure to address the unique hardships faced by farmers and fishermen, Chapter 12 bankruptcy was later made permanent under the Bankruptcy Code.
Who Should File for Chapter 12 Bankruptcy in California
Only family farmers or fishermen with “regular annual income” can file for Chapter 12 bankruptcy.
The “regular annual income” requirement ensures the petitioner can make repayments. Seasonal income may qualify for “regular annual income” if it allows the petitioner to make sufficient repayments under a Chapter 12 plan.
You cannot file for Chapter 12 bankruptcy if you:
- Have had a bankruptcy petition dismissed within the last 180 days because you willfully failed to appear before the court or comply with court orders
- Have had a previous bankruptcy petition voluntarily dismissed within the last 180 days after creditors asked the court to recover property over which they held liens
- Have not received credit counseling within 180 days before filing your petition
Further eligibility criteria may apply, depending on the structure of your farming or fishing business.
Chapter 12 Bankruptcy Criteria
A family farmer or fisherman can be:
- An individual or individual and spouse, or
- A corporation or partnership
Individual or Individual and Spouse
To be eligible to file for Chapter 12 bankruptcy as an individual or individual and spouse, the following factors must be true:
- You must operate a farming or commercial fishing operation
- Your total debts cannot exceed the threshold, the amount of which changes periodically and is now currently set at $11,097,350 (for a farmer) or $2,268,550 (for a fisherman).
- Excluding your home mortgage, at least 50% (for a farmer) and 80% (for a fisherman) of your fixed debts must come from the farming or commercial fishing operation.
- More than 50% of your gross income must come from the farming or commercial fishing operation.
Corporation or Partnership
To be eligible as a corporation or partnership, the following factors must be true:
- More than 50% of the corporation or partnership's stock or equity must be owned by a single family and their relatives.
- The family must operate the farming or commercial fishing operation.
- More than 80% of the value of the corporation or partnership assets must relate to the farming or fishing operation.
- The total debts cannot exceed the threshold, the amount of which changes periodically and is now currently set at $11,097,350 (for a farmer) or $2,268,550 (for a fisherman).
- Excluding the home mortgage of a shareholder or partner, at least 50% (for farming) and 80% (for fishing) of its fixed debts must arise from the farming or commercial fishing operation.
- In the case of a corporation, its stock cannot be publicly traded.
If you meet these criteria, you can file a petition for Chapter 12 bankruptcy.
How Do I File for Chapter 12 Bankruptcy in California?
The process to file for Chapter 12 bankruptcy in California is rather straightforward though the paperwork and deadlines make it complex. The following is a summary of how you can go about filing for bankruptcy, but it is always best – especially when your life's work is at stake – to consult with a bankruptcy attorney in California to ensure you are taking the right steps to safeguard your business and to get it back on financial footing.
- File the petition. The first step in Chapter 12 bankruptcy proceedings is filing a voluntary petition for relief and paying any associate filing fee.
- Gather financial information. You also need to gather all the financial information relating to your farming or fishing operation. In addition to the petition, you'll need to provide documents like bankruptcy schedules, a statement of financial affairs, a list of debtors and credits, and any other supporting documents the court requests.
- Develop a repayment plan. You are required to present a repayment plan for the court's approval within 90 days of filing for bankruptcy.
In a Chapter 12 case, the court appoints a bankruptcy trustee, however, you can typically continue to operate your farming or fishing business while the case remains open and repayments are being made.
Once the repayment plan is complete, your debts are discharged by the court and your case is closed.
While you are not required by law to be legally represented in Chapter 12 proceedings but as already mentioned, a lawyer can help you navigate the complexities of the process and make sure the rules and procedures are satisfied timely and accurately.
Contact a Bankruptcy Lawyer in California Today
Chapter 12 bankruptcy allows you to extend bankruptcy relief and protect your assets while you work to get your financial affairs sorted. You can still operate your business while you create and implement a repayment plan over the course of three to five years. At DiMarco Warshaw, APLC, our Chapter 12 bankruptcy attorney helps farmers and fishermen come up with a viable plan that works for them. Contact us via our online form or by calling us at 888-890-5474 to schedule a free initial consultation and to learn more about the advantages of Chapter 12 bankruptcy.