Filing Under Chapter 12: A Lifesaver For Family Farmers & Fishers

Typically when we talk about bankruptcy we are talking about Chapter 7, Chapter 11, or Chapter 13 bankruptcy, but there is another chapter of the bankruptcy code that is important to talk about in a state like Wisconsin where may people farm or fish to support their families. Chapter 12 is a special chapter of the bankruptcy code that was enacted specifically so that “family farmers” and “family fishermen” can file for bankruptcy without losing all their assets and giving up their way of life.

Chapter 12 bankruptcies are like Chapter 11 or Chapter 13 bankruptcies in that the goal is to reorganize operations, and repay debts on a payment plan. However, Chapter 12 is simpler and less expensive to file under than Chapter 11, which was designed with large corporations in mind. But Chapter 12 is also a lot better at dealing with the large debts and less predictable income that characterize family farming and fishing operations than Chapter 13 is.

There are very specific rules governing who qualifies as “family farmers” and “family fishermen.”

If the filer is an individual or a family, they must meet all of the following criteria:

  1. The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
  2. The total debts (secured and unsecured) of the operation must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
  3. If a family farmer, at least 50%, and if family fisherman at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
  4. More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.

If the filer has structured their operation as a corporation or partnership, they must meet all of these criteria:

  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 or commercial fishing operation.
  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 $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
  5. At least 50% for a farming operation or 80% for a fishing operation of the corporation’s or partnership’s total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the farming or fishing operation.
  6. If the corporation issues stock, the stock cannot be publicly traded.

Data from the Administrative Office of the Courts shows there were only 40 Chapter 12 bankruptcies filed in Wisconsin last year out of a total of 17,159 bankruptcies filed, so they are relatively rare. However, one high profile Chapter 12 bankruptcy has been in the news. A farmer down in Geneseo, Illinois has filed for Chapter 12 bankruptcy after the farm’s plan to sell high-quality, all-natural meat failed. Some customers are crying fraud, and the Illinois Attorney General has gotten involved, so we are keeping an eye on this case to see if it will impact the law governing Chapter 12 bankruptcies.