In our previous post, we began looking at the farm debt crisis and the challenges facing farmers due to low commodity prices. Fortunately for farmers, government assistance does provide some help, but many still struggle. With any business, major financial challenges can lead, by necessity, to adaptation and major restructuring of the business. This is as it should be. When the financial challenges threaten the solvency of the business, though, bankruptcy may be the only way out.  

Oftentimes, businesses will file for bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, or individuals who own business will file under Chapter 7 or Chapter 13. Certain types of farmers, though, are able to file for bankruptcy under Chapter 12. This chapter of the bankruptcy code is specifically geared to family farmers and family fishermen with regular yearly income. Under Chapter 12, a family farmer is able to establish a plan to repay all or part of his or her debts, similar to Chapter 13. 

Chapter 12 bankruptcy is unique in that the process is simpler and less expensive than Chapter 11 bankruptcy. It is also more beneficial than Chapter 13 bankruptcy to family farmers who have debts which exceed the limits of that form of bankruptcy.

To qualify for Chapter 12 bankruptcy, a family farmer must have a regular income to ensure enough income is available to implement a repayment plan, though it is still possible for farmers with seasonal income to qualify. In terms of qualifications as a family farmer, there are two sets of requirements depending on whether the farm individually owned or owned as a corporation or partnership. We’ll look at these requirements in a future post.