Most people are familiar with Chapter 7 and 13 bankruptcy filings, but few are aware of Chapter 12. If you are a fisherman or farmer, a Chapter 12 filing could be the best option available to handle debts. Before deciding which filing to use, here is what you need to know about Chapter 12 bankruptcy.
Why Should You File for a Chapter 12?
Since your farm or fishery is considered to be a business, filing for a Chapter 7 or 11 might seem like a logical step. However, filing for a Chapter 12 would probably work better because of the nature of your business.
A Chapter 12 does not have the same requirements as other bankruptcy filings. For instance, you do not have to attend a credit counseling class or undergo a means test. You are also allowed more exemptions than with a Chapter 13.
In addition to these benefits, you also have more time to pay off your debts. With a Chapter 12, you are not limited to a set number of years. You can create a payment plan that fits within your budget and is acceptable to the court.
What Is Included in the Repayment Plan?
A major part of the Chapter 12 bankruptcy is the repayment plan. Any disposable income that you have must be paid towards your debts. Since you are operating a farm or fishery, disposable income is the amount of revenue left after the expenses related to operating your farm are paid. The expenses that are part of supporting your family are also considered.
The Chapter 12 gives you the opportunity to cram down on some of your secured debts, such as the mortgage on your farm. In a cram down, debts can be reduced down to the current market value. In many instances, this could mean getting rid of all or most of the interest that is owed on a loan. The amount owed can then be included in your repayment plan.
What Happens to Unpaid Debts?
Since the Chapter 12 focuses mainly on secured debts, unsecured debts could still remain after the repayment plan is completed. If you have unsecured debts remaining, the court can discharge those debts.
It is important to note that some debts do not qualify for discharge. Your bankruptcy attorney, someone from a place like Demers Gagnier Inc., can help you determine which debts will not qualify and explore options for handling those debts. Your attorney might be able to negotiate a payment plan or settlement to handle those debts.