Dillon Law

A chapter 12 bankruptcy is a form of Chapter 13 bankruptcy with special farm provisions.

It enables farmers to propose and carry out a plan to repay all or part of their debts. Under chapter 12 just like chapter 13, debtors propose a repayment plan to make installments to creditors over three to five years, with five being the max and three being the preferred.

Chapter 12 is more streamlined, less complicated, and less expensive than chapter 11, which is aimed towards large corporate reorganizations and few farmers find chapter 13 to be a good fit because it is designed for those who have smaller debts than a farm could be facing.  You cannot be forced to file a Chapter 12 proceeding, like you can be in Chapter 7, 11, and 13. In Chapter 12, creditors don't have the right to approve your plan like they do in an 11. You must have permission to get rid of the assets if you are in a Chapter 12. If you want to do that, you need to provide the creditor "adequate protection" to ensure that the creditor is on left out in the cold.

Farmers eligible are either (1) an individual or individual and spouse and (2) a corporation or partnership.  Individuals must meet each of the following four tests.

Chapter 12 contains a special automatic stay provision that protects co-debtors. Unless the bankruptcy court orders it, a creditor may not  collect a "consumer debt" from any individual who is also owes a debt jointly with the debtor. Consumer debts are those incurred by an individual primarily for a personal, family, or household purpose.

The individual or husband and wife must be engaged in a farming operation.

1.    The total debts (secured and unsecured) of the operation must not exceed $3,792,650.
2.    At least 50% of the total debts that are fixed in amount (not including of debt on the house) must be related to the farming.
3.    More than 50% of the gross income of the individual or the husband and wife for the preceding tax year or for each of the 2nd and 3rd prior tax years must have come from the farming.

The corporation or partnership must meet the following criteria as of the date of the filing of the petition:

1.    More than one-half the outstanding stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives.
2.    The family or the family and its relatives must conduct the farming.
3.    More than 80% of the value of the corporate or partnership assets must be related to the farming or fishing operation.
4.    The total indebtedness of the corporation or partnership must not exceed $3,792,650.
5.    At least 50% of corporation's or partnership's total debts which are fixed in amount (excluding debt on one home occupied by a shareholder) must be related to the farming.
6.    If the corporation issues stock, the stock cannot be publicly traded.


If you would like to schedule a initial consultation contact an Iowa bankruptcy attorney, representing clients in Sumner, Iowa at the Dillon Law P.C. Give us a call at (563) 578-1850 or complete our inquiry form.

Friday, July 12, 2024

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