At our firm, we advise every potential bankruptcy client about each chapter of the Bankruptcy Code that could potentially provide them with protection from their creditors.  Although these discussions typically focus upon Chapter 7 (and, to a lesser extent, Chapter 13), one of the chapters we also mention is Chapter 12. This chapter is designed for “family farmers” or “family fishermen” with “regular annual income.” It enables financially distressed family farmers and fishermen to propose and carry out a plan to repay all or part of their debts. Under Chapter 12, debtors propose a repayment plan to make installments to creditors over three to five years. Generally, the plan must provide for payments over three years unless the court approves a longer period “for cause.” But unless the plan proposes to pay 100% of domestic support claims (i.e., child support and alimony) if any exist, it must be for five years and must include all of the debtor’s disposable income. In no case may a plan provide for payments over a period longer than five years. 11 U.S.C. § 1222(b)-(c).

In tailoring bankruptcy law to meet the economic realities of family farming and the family fisherman, Chapter 12 eliminates many of the barriers such debtors would face if seeking to reorganize under either Chapter 11 or 13 of the Bankruptcy Code. For example, Chapter 12 is more streamlined, less complicated, and less expensive than Chapter 11, which is better suited to large corporate reorganizations. In addition, few family farmers or fishermen find Chapter 13 to be advantageous because it is designed for wage earners who have smaller debts than those facing family farmers. In Chapter 12, Congress sought to combine the features of the Bankruptcy Code which can provide a framework for successful family farmer and fisherman reorganizations.

The Bankruptcy Code provides that only a family farmer or family fisherman with “regular annual income” may file a petition for relief under Chapter 12. 11 U.S.C. §§ 101(18), 101(19A), 109(f). The purpose of this requirement is to ensure that the debtor’s annual income is sufficiently stable and regular to permit the debtor to make payments under a Chapter 12 plan. But Chapter 12 makes allowance for situations in which family farmers or fishermen have income that is seasonal in nature. Relief under Chapter 12 is voluntary, and only the debtor may file a petition under the chapter.

Although we have yet to have a client seek relief under this chapter (which is not surprising since family farmers and family fisherman are uncommon in the greater Detroit area), a basic understanding of this chapter, as well as other less frequently used provisions such as Chapter 15, is necessary in order to ensure that all possible avenues of relief are considered for each client.

-Drew Broaddus