Chapter 12, Title 11, United States Code

Last updated

Chapter 12 of Title 11 of the United States Code, or simply chapter 12, is a chapter of the Bankruptcy Code. It is similar to Chapter 13 in structure, but it offers additional benefits to farmers and fishermen in certain circumstances, beyond those available to ordinary wage earners. Chapter 12 is applicable only to family farmers and fishermen.

Contents

History

Background

For much of the history of bankruptcy law in the United States, there was no provision applicable specifically to farmers. The 1898 Bankruptcy Act contained no special provisions, with one exception that farmers were immune from an involuntary bankruptcy petition. Section 75 was enacted by the Bankruptcy Act of 1933 and provided specific provisions for farmers. [1] However, many of these provisions were limited in scope, and ultimately required the voluntary cooperation of mortgagors and creditors.

In addition, section 75, as it was originally conceived, was a temporary measure. It was scheduled to expire on March 3, 1938. [1]

The Frazier-Lemke Act expanded the scope of section 75, providing for stronger protections available to farmers operating under bankruptcy protection. These changes too were initially temporary, but they were extended a number of times until they ultimately expired on March 31, 1949. [1]

By and large, after the expiration of section 75, farmers were subject to the same rules of bankruptcy as other debtors. The application of the same rules was the case after the passage of the Bankruptcy Code of 1976 until 1986. [1]

Passage

Chapter 12 was added to the Bankruptcy Code in 1986 by the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986. [2] [3] It went into effect on November 26, 1986. [2]

The modification of the bankruptcy code was intended as an emergency response to tightening agricultural credit in the early and mid-1980s, in the middle of a number of notable bank failures. [1]

The Act was to originally expire on October 1, 1993, but it was extended a number of times without expiring until it was made permanent by the 2005 BAPCPA. [1]

Description

Definitions

Under chapter 12, a "family farmer" is defined as an individual who owns and is engaged in a faming operation (which includes farming, tillage of the soil, dairy, ranching, crops, poultry and/or livestock, and production of poultry and/or livestock) with aggregate debts of less than $10,000,000. At least half of these debts much arise from the farming operation, and the farmer must receive more than 50% of gross income from farming in the preceding tax year. [4]

A family farmer may also be defined as a corporation or partnership at least 50% owned by one family who conduct farming operations, with at least 80% of its value derived from farming assets and aggregate debts of less than $10,000,000 (at least 50% of which must derive from the farming operation). The corporation or partnership may also not have publicly traded stock in order to be defined as a family farmer. [5]

Implementation

Chapter 12 provides additional benefits not available under chapter 13 and chapter 11. These benefits include higher debt ceilings than those under chapter 13, and more advantageous exemptions.

While each Chapter 12 reorganization will look different depending on the business, the process follows a general outline. First, farmers should find an attorney to help assess their eligibility and guide them through the planning process. Farmers will have 14 days after filing a chapter 12 petition to file all supplementary information such as income, debts, and the like. Once this has been filed, the court will send a notice to all parties involved, including creditors. Between 21 and 40 days after the petition is filed, a meeting between the debtor and the creditors will be held (sometimes called a 341 meeting) in order to review documents, ask questions, and verify the petition's accuracy. Within 90 days of filing, the debtor must file a chapter 12 plan with the court, which will be confirmed or denied within 45 days of filing. Once confirmed, the plan will be implemented and payments will begin (chapter 12 does not include a 30 day requirement such as under chapter 13). Payments are submitted to the plan trustee, who distributes to creditors. Once payments are complete, the debts are discharged by the court. [6]

Features that distinguish it from other bankruptcy chapters

  1. Eligibility Criteria: Chapter 12 is available exclusively to family farmers and family fishermen who meet specific eligibility criteria. These criteria include, but are not limited to, requirements related to income, debt limits, and the nature of the farming or fishing operation.
  2. Debt Adjustment Plan: Upon filing for chapter 12, the debtor proposes a debt adjustment plan outlining how their debts will be reorganized and repaid. This plan typically spans a period of three to five years and must be approved by the bankruptcy court.
  3. Creditor Protections: Chapter 12 provides certain protections for creditors to ensure that they receive a fair distribution of the debtor's assets. These protections include the establishment of a trustee who oversees the debtor's compliance with the repayment plan and the right of creditors to object to the plan.
  4. Discharge of Debts: Successful completion of the repayment plan results in the discharge of certain debts, relieving the debtor from personal liability for those obligations. However, certain debts, such as taxes and debts incurred through fraud, may not be dischargeable.

Impact and Significance

Chapter 12 has had a significant impact on the agricultural and fishing industries in the United States. By providing a tailored bankruptcy framework, it has facilitated the reorganization and recovery of countless family farmers and family fishermen, allowing them to preserve their businesses, assets, and way of life. It has also contributed to the stability and sustainability of these industries, ensuring the continued production of food and resources for the nation.

Related Research Articles

Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the debtor.

Chapter 11 of the United States Bankruptcy Code permits reorganization under the bankruptcy laws of the United States. Such reorganization, known as Chapter 11 bankruptcy, is available to every business, whether organized as a corporation, partnership or sole proprietorship, and to individuals, although it is most prominently used by corporate entities. In contrast, Chapter 7 governs the process of a liquidation bankruptcy, though liquidation may also occur under Chapter 11; while Chapter 13 provides a reorganization process for the majority of private individuals.

Chapter 7 of Title 11 U.S. Code is the bankruptcy code that governs the process of liquidation under the bankruptcy laws of the U.S. In contrast to bankruptcy under Chapter 11 and Chapter 13, which govern the process of reorganization of a debtor, Chapter 7 bankruptcy is the most common form of bankruptcy in the U.S.

Title 11 of the United States Code sets forth the statutes governing the various types of relief for bankruptcy in the United States. Chapter 13 of the United States Bankruptcy Code provides an individual with the opportunity to propose a plan of reorganization to reorganize their financial affairs while under the bankruptcy court's protection. The purpose of chapter 13 is to enable an individual with a regular source of income to propose a chapter 13 plan that provides for their various classes of creditors. Under chapter 13, the Bankruptcy Court has the power to approve a chapter 13 plan without the approval of creditors as long as it meets the statutory requirements under chapter 13. Chapter 13 plans are usually three to five years in length and may not exceed five years. Chapter 13 is in contrast to the purpose of Chapter 7, which does not provide for a plan of reorganization, but provides for the discharge of certain debt and the liquidation of non-exempt property. A Chapter 13 plan may be looked at as a form of debt consolidation, but a Chapter 13 allows a person to achieve much more than simply consolidating his or her unsecured debt such as credit cards and personal loans. A chapter 13 plan may provide for the four general categories of debt: priority claims, secured claims, priority unsecured claims, and general unsecured claims. Chapter 13 plans are often used to cure arrearages on a mortgage, avoid "underwater" junior mortgages or other liens, pay back taxes over time, or partially repay general unsecured debt. In recent years, some bankruptcy courts have allowed Chapter 13 to be used as a platform to expedite a mortgage modification application.

Personal bankruptcy law allows, in certain jurisdictions, an individual to be declared bankrupt. Virtually every country with a modern legal system features some form of debt relief for individuals. Personal bankruptcy is distinguished from corporate bankruptcy.

Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continue its operations.

<span class="mw-page-title-main">Bankruptcy in the United States</span> Overview of bankruptcy in the United States of America

In the United States, bankruptcy is largely governed by federal law, commonly referred to as the "Bankruptcy Code" ("Code"). The United States Constitution authorizes Congress to enact "uniform Laws on the subject of Bankruptcies throughout the United States". Congress has exercised this authority several times since 1801, including through adoption of the Bankruptcy Reform Act of 1978, as amended, codified in Title 11 of the United States Code and the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).

<span class="mw-page-title-main">Insolvency</span> State of being unable to pay ones debts

In accounting, insolvency is the state of being unable to pay the debts, by a person or company (debtor), at maturity; those in a state of insolvency are said to be insolvent. There are two forms: cash-flow insolvency and balance-sheet insolvency.

<span class="mw-page-title-main">Bankruptcy Abuse Prevention and Consumer Protection Act</span> 2005 American bill

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) is a legislative act that made several significant changes to the United States Bankruptcy Code.

A bankruptcy discharge is a court order that releases an individual or business from specific debts and obligations they owe to creditors. In other words, it's a legal process that eliminates the debtor's liability to pay certain types of debts they owe before filing the bankruptcy case.

Bankruptcy in the United Kingdom is divided into separate local regimes for England and Wales, for Northern Ireland, and for Scotland. There is also a UK insolvency law which applies across the United Kingdom, since bankruptcy refers only to insolvency of individuals and partnerships. Other procedures, for example administration and liquidation, apply to insolvent companies. However, the term 'bankruptcy' is often used when referring to insolvent companies in the general media.

A petition mill is a fraud in which the perpetrator poses as a financial advisor, sometimes as a credit counselor or paralegal, filing hastily prepared bankruptcy documents in the name of victims who come to the advisor as clients. The bankruptcy filing is often both incomplete and inappropriate for the victim's condition; and, often, the victim does not even realize that a bankruptcy has been filed.

An individual voluntary arrangement (IVA) is a formal alternative in England and Wales for individuals wishing to avoid bankruptcy. In Scotland, the equivalent statutory debt solution is known as a protected trust deed.

Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their creditors. In most cases personal bankruptcy is initiated by the bankrupt individual. Bankruptcy is a legal process that discharges most debts, but has the disadvantage of making it more difficult for an individual to borrow in the future. To avoid the negative impacts of personal bankruptcy, individuals in debt have a number of bankruptcy alternatives.

An unfair preference is a legal term arising in bankruptcy law where a person or company transfers assets or pays a debt to a creditor shortly before going into bankruptcy, that payment or transfer can be set aside on the application of the liquidator or trustee in bankruptcy as an unfair preference or simply a preference.

In United States bankruptcy law, an automatic stay is an automatic injunction that halts actions by creditors, with certain exceptions, to collect debts from a debtor who has declared bankruptcy. Under section 362 of the United States Bankruptcy Code, the stay begins at the moment the bankruptcy petition is filed. Secured creditors may, however, petition the bankruptcy court for relief from the automatic stay upon a showing of cause.

Toibb v. Radloff, 501 U.S. 157 (1991), was a case in which the United States Supreme Court held that individuals are eligible to file for relief under the reorganization provisions of chapter 11 of the United States Bankruptcy Code, even if they are not engaged in a business. The case overturned the lower courts ruling which restricted individuals to chapter 7.

Bankruptcy in Irish Law is a legal process, supervised by the High Court whereby the assets of a personal debtor are realised and distributed amongst his or her creditors in cases where the debtor is unable or unwilling to pay his debts.

Bankruptcy in Florida is made under title 11 of the United States Code, which is referred to as the Bankruptcy Code. Although bankruptcy is a federal procedure, in certain regards, it looks to state law, such as to exemptions and to define property rights. The Bankruptcy Code provides that each state has the choice whether to "opt in" and use the federal exemptions or to "opt out" and to apply the state law exemptions. Florida is an "opt out" state in regard to exemptions. Bankruptcy in the United States is provided for under federal law as provided in the United States Constitution. Under the federal constitution, there are no state bankruptcy courts. The bankruptcy laws are primarily contained in 11 U.S.C. 101, et seq. The Bankruptcy Code underwent a substantial amendment in 2005 with the "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005", often referred to as "BAPCPA". The Bankruptcy Code provides for a set of federal bankruptcy exemptions, but each states is allowed is choose whether it will "opt in" or "opt out" of the federal exemptions. In the event that a state opts out of the federal exemptions, the exemptions are provided for the particular exemption laws of the state with the application with certain federal exemptions.

<i>Farm Debt Mediation Act</i>

The Farm Debt Mediation Act ("FDMA") is an act of the Parliament of Canada that enables a debt advisory service to insolvent farmers by Agriculture and Agri-Food Canada, as well as certain protective provisions available to help facilitate mediation with creditors while allowing such farmers to continue their operations.

References

  1. 1 2 3 4 5 6 Collier on Bankruptcy., 8-1200 P 2.
  2. 1 2 Pub. L. No. 99-554
  3. ↑ Agricultural Finance and Credit, Jonathan M. Bishoff, Nova Publishers, 2008, ISBN   160456072X, ISBN   9781604560725, pp. 91–92.
  4. ↑ "11 U.S. Code § 101 - Definitions". LII / Legal Information Institute. Retrieved 2022-11-01.
  5. ↑ "11 U.S. Code § 101 - Definitions". LII / Legal Information Institute. Retrieved 2022-11-01.
  6. ↑ Merrick, Gordon; Kruszewski, Sophia (September 15, 2021). "Reorganizing a Farm Business with Chapter 12 of the Bankruptcy Code: A Brief Guide" (PDF). Vermont Law and Graduate School. Retrieved November 1, 2022.{{cite web}}: CS1 maint: url-status (link)


This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.