Benefits of Chapter 12 Bankruptcy
When struggling financially, many businesses seek relief through a Chapter 11 or Chapter 7 bankruptcy filing. However, farms and fisheries of a certain size may instead elect to pursue the protections offered by Chapter 12 of the United States Bankruptcy Code. This particular option is crafted specifically for these types of operations and therefore is often better-suited to resolving the concerns associated with their structure and debt.
If you own a small farm or fishery and are currently unable to keep pace with the business’s financial obligations, it may be worthwhile to explore the possible advantages of a Chapter 12 bankruptcy filing. To learn more about the benefits of Chapter 12 bankruptcy, contact the Raleigh bankruptcy lawyers of the Bradford Law Offices, PLLC, at (919) 758-8879.
Advantages of Chapter 12 Bankruptcy
Chapter 12 is reserved for family farmers and fishermen who earn more than 50 percent of their income through the operation of these businesses. There are a number of advantages of Chapter 12 bankruptcy such as:
- No means test or credit counseling requirement like those in a Chapter 7 case
- Assets are not at risk of liquidation
- Monthly payments can accommodate seasonal earning trends and do not need to be equal
- No anti-modification provision on home mortgages
- Less rigid limitations on the amount of debt you are allowed to have
- A petitioner has up to 90 days to file a plan
- No need to make payments until the plan is confirmed
- More exemptions than those available under other types of bankruptcy
- Payments can be extended for expensive property beyond the end of the bankruptcy period
- Less oversight from the trustee
- Both individual farmers and corporations or partnerships can file
If your farm or fishing business is struggling, it is important to know you have options and a skilled and experienced attorney can help you to better understand what they are.
One of the most important benefits of a Chapter 12 bankruptcy is that it allows the family business to stay open. When you file a petition under Chapter 12, it automatically stops most of the collection actions against the family farmer and the family farm. Thus, it allows the farm’s daily operations to continue. If the business is the family’s only means of income, the automatic stay is a vital lifeline. It can help the farm navigate through a tough financial period.
On the other hand, the interests of the creditors are still protected during the Chapter 12 bankruptcy. However, the ways they may exercise those rights are regulated by bankruptcy law. Therefore, as long as the stay is in place, the creditors are barred from filing or proceeding with foreclosures, repossessing the assets, or pursuing lawsuits in state courts.
Co-Signers are protected – Unless the court rules otherwise, the automatic stay from creditors can also extend to co-signers. For as long as the automatic stay is in effect, creditors are also prohibited from pursuing any action against co-signers or co-debtors, who are otherwise jointly liable to a debt. These prohibited actions primarily apply to debts that are initially incurred for personal, family, or household purposes. In other words, co-debtors are protected from consumer debt collection. This only relates to individual co-debtors.
“Cramming down” applies to a debtor’s secured debt. It is one of the most essential tools of Chapter 12 bankruptcy. With this tool, the debtor can basically lower the amount of the secured debt. This is done by “cramming down” the amount to just the current sale value of the collateral. This can be done regardless of what is actually owed. For instance, if the debtor still owes $30,000 on a tractor, but it is only worth $15,000, the amount of the loan can be lowered, or “crammed down,” to $15,000.
Another important aspect of the “cram down” tool is that it also applies to home mortgages. The mortgage of the debtor’s principal residence cannot be crammed down in Chapter 11 and 13 bankruptcies. However, it is not prohibited in Chapter 12 bankruptcies. As a result, if the debt on the house is upside-down, its principal mortgage balance can be reduced to reflect the current value. Accordingly, the interest can be adjusted, as well.
There is no need to continue daily in a state of worry over the future of your farm or fishing operation. Take the steps necessary to begin finding a way forward when your business’s debts are too much to manage. Contact the Raleigh Chapter 12 bankruptcy attorneys of the Bradford Law Offices, PLLC, by calling (919) 758-8879 today.