How Does a Family Farmer, Family Corporate Farmer, or Fisher Qualify for Chapter 12 Bankruptcy?

For those involved in agribusiness in the State of Hawaii, farmers and fishers, in particular, facing financial stress can seem like an overwhelming experience. But the creation of Chapter 12 bankruptcy in 1986 was a lifeboat for farmers, and later in 2005 for fisherman, who needed to reorganize their debt to stay in business. But who is eligible for Chapter 12? Congress clearly intended to benefit the family-owned operations, whether land or sea.

In order to qualify for Chapter 12 farm bankruptcy, an individual or individual and their spouse must be engaged in farming operations for at least 50% their annual income and, if not the most recent tax year, then the second and third most recent tax years. In addition, the total debts (secured and unsecured) of the operation must not exceed $10,000,000 (indexed to adjust periodically). Also, at least 50% of the fixed debt must come from the farming operation, excluding their personal residence unless the residence debt is due to or comes from the farming operation.
Family-owned business entities, such as a corporation, may also qualify with some differences. In order to file both the farm individual and the family-owned business entity; the court can consider either joint administration or substantive consolidation of the two cases in order to treat as one case. Individuals or couple who have given personal guarantees for their farm corporation, have business entity tax debt, or have given a mortgage on a residence may handle their financial problems in this way.

Family fishers and family-owned fishing corporations have less lenient qualifying requirements and Congress has not corrected that problem as it did for family-owned farms, yet some fishers may qualify if their debt is less than $2,044,225. Analysis of the debt structure is needed to determine qualifications for both farmers and fishers.

Once you and your debt relief attorney have determined that you are qualified under chapter 12, you may also propose in your debt adjustment plan to scale down the operation and receive income from outside sources without forfeiting continued eligibility for Chapter 12 bankruptcy relief.

Call a Chapter 12 experienced bankruptcy attorney, Barbara L. Franklin, at (808) 775-0530 for a telephone evaluation of the Chapter 12 qualifications.