A Chapter 12 Bankruptcy provides a means for financially distressed family farmers, or fisherman, to propose a plan to repay all or part of their debts. Eligibility for Chapter 12 is limited to “family farmers” or “family fishermen” with “regular annual income.” Chapter 12 has some similarities to Chapter 13, however it is more flexible, and can deal with larger debts. Compared to a Chapter 11 (business reorganization) case, it is simpler and less expensive.
The purpose of Chapter 12 is to allow a family farmer to continue operating, while he is reorganizing his debt.
A chapter 12 plan usually lasts three to five years. It provides for payments to different types of creditors. It can provide for “curing” a default to secured creditors (those holding a mortgage, or a lien on property), catching up those payments during the plan. There are special rules for priority creditors, such as certain tax debts, or child support creditors. Unsecured creditors may not need to be paid in full: the plan must represent the debtors best efforts to pay, and must pay them at least as much as they would receive in a Chapter 7 bankruptcy, if the debtor’s non-exempt assets were liquidated.
If the court confirms the plan, the chapter 12 trustee will distribute funds received in accordance with the terms of the plan. Upon completion of the plan, the debtor will be discharged (some debts, which include alimony, child support, debts obtained by fraud, etc., cannot be discharged).
A Chapter 12 Plan can be a complicated proceeding. The debtor will want to be represented by a competent bankruptcy attorney.