Farming and fishing are unpredictable industries. Some of the things that can leave business owners struggling to pay their debts include bad weather, market fluctuations, and rising costs. When financial trouble hits, family farmers and commercial fishermen can use Chapter 12 bankruptcy to restructure their debt while keeping their businesses running.

What Is Chapter 12 Bankruptcy?

Chapter 12 is a special type of bankruptcy designed specifically for farmers and fishermen. Unlike Chapter 7, which requires selling assets to pay creditors, Chapter 12 lets debtors create a repayment plan while continuing operations​. This plan typically lasts three to five years and allows farmers and fishermen to repay their debts based on seasonal income​.

Who Qualifies for Chapter 12?

To file for Chapter 12, you must meet the following criteria:

  • Be a farmer or fisherman with regular annual income.
  • Meet debt limits. Farmers must owe less than $11,097,350, and fishermen must owe less than $2,268,550​.
  • Have at least 50% of debts (farmers) or 80% (fishermen) related to business operations​.

Benefits of Chapter 12

  • Stops creditor harassment: As soon as you file, lenders must stop collection attempts, repossessions, and foreclosures​.
  • Restructures debt: The “cramdown” provision allows you to reduce secured debt to the market value of your assets. If your equipment loan is more than what the equipment is worth, Chapter 12 can lower what you owe​.
  • More flexible payments: Unlike Chapter 11 or 13, Chapter 12 recognizes that farmers and fishermen earn money seasonally. The court considers this when approving a repayment plan​.
  • Debt forgiveness: Once the repayment plan is complete, some remaining debts may be discharged​.

Things to Consider Before Filing

Chapter 12 works best for those who want to keep their business running while paying off debt. However, there are a few things to keep in mind:

  • You must show a stable income, even if it fluctuates throughout the year​.
  • A court-appointed trustee will oversee payments to creditors​.
  • Certain debts, like child support and some taxes, cannot be erased​.

If debt is threatening your farm or fishing business, Chapter 12 may offer a way forward. It provides protection from creditors and gives you time to repay what you owe. Contact O’Brien Law Firm, LLC, in Southaven, MS, today to discuss your options and get the legal guidance you need.

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