Representing Wisconsin Farmers In Chapter 12 Bankruptcy
At Richman & Richman LLC, so many farmers we have seen over the years have waited too long before seeing a qualified farm workout attorney. Many tend to go it alone or trust their bank or banker to give them good advice. Others grant concessions or security interests to trade creditors to which they owe money.
It is important to understand that when you owe money, your creditors do not have your long-term success first on their minds. You need independent qualified advice to survive in today’s farm economy. Before granting concessions or liquidating assets, you should seek independent counsel for advice.
What You Can Expect In Agricultural Bankruptcy
Chapter 12 bankruptcy provides many alternatives for reorganizing a family farm and family fisherman debts. It is the section of the Bankruptcy Code that provides for the restructuring of the debts of a small farm, family farm or family fisherman’s business. This section is a powerful tool that enables farmers and fishermen to reduce or restructure their payments so that they can continue to farm or fish.
Defining Chapter 12 Bankruptcy Under Wisconsin Law
In Wisconsin, a Chapter 12 bankruptcy allows family farmers and family fishermen to avoid foreclosures or liquidations by restructuring their debts. Congress enacted Chapter 12 of the Bankruptcy Code in 1986 in response to the farm financial crisis in the 80’s, and it has been an important means of assisting struggling farmers since then.
Chapter 12 allows a family farmer to establish a repayment schedule over a period of time, and has additional benefits beyond what is available in Chapter 11 or 13. Generally, Chapter 12 also allows the debtor to reduce a mortgage to the current value of the property, reduce the interest rate to the current market rate interest and/or extend the payment period on the debt.
General Overview Of The Chapter 12 Process
Chapter 12 bankruptcy provides an orderly framework for financial reorganization. Our Wisconsin bankruptcy attorneys walk you through the steps of the Chapter 12 bankruptcy process, file necessary forms, and prepare the plan of reorganization. Here’s how the process works:
- Begins with the filing of a petition with the clerk of the bankruptcy court. Careful planning with your attorney is critical prior to filing, as many rights, disclosure requirements, and deadlines are determined by the filing date.
- All creditors must receive notice of the bankruptcy, including all of the debtor’s assets and obligations.
- A bankruptcy trustee and judge will be immediately assigned to the case.
- Within 90 days of filing the bankruptcy, the debtor is required to submit a reorganization and/or repayment plan to the bankruptcy court. Creditors do not need to approve of this plan; the creditors will not have an opportunity to vote on the plan. Only the court can approve the plan for confirmation after hearing from the creditors and the debtor. Confirmation of the plan may last several months.
- There are specific requirements for a plan to be confirmed. These requirements will be discussed with you during your meetings with your bankruptcy attorney.
- Once the plan is completed, the trustee will be dismissed. Discharge of debt is granted by the court if repayment obligations are met. The debtor will be discharged and continue to make the long-term scheduled payments to the secured creditors directly.
Three to five years is the usual time for repayment, but secured debts (such as mortgage claims) may be payable over a longer period.
Primary Benefits Of Chapter 12 Bankruptcy
The most beneficial aspects of Chapter 12 are the ability to:
- Reduce the mortgage to the current value of the property
- Reduce the mortgage interest rate to a rate that reflects the current market
- Extend the payment period on the debts
Requirements For Chapter 12 Bankruptcy Eligibility
A family farm or fishing business must be family owned or controlled and meet certain eligibility requirements to file, including debt limits and restrictions on what percentage of income is derived from the farming or fishing operation.
Farmers experiencing financial distress are encouraged to discuss these issues with a bankruptcy lawyer. Many of the issues raised here can be very complicated when applied to a specific case. Good legal advice and careful planning are critical aspects to successful bankruptcy reorganization.
Who Can Qualify For A Chapter 12 Bankruptcy In Wisconsin?
To file a voluntary petition for relief, you must:
- Be engaged in a farming operation.
- Have a regular annual income, sufficient to pay according to the terms of your Chapter 12 repayment plan. Seasonal income is sufficient if you make the agreed-upon payments.
- Debts must not total more than $10 million for farmers or $2,044,225 for fishermen.
- Debts (other than home mortgages) must be related to the business operations – at least 50% of total debt for farming operations or 80% of total debt for commercial fishing operations.
- Gross income (over 50%) must be derived from farming or commercial fishing operations.
- Corporations and partnerships qualify only if a single family owns more than 50% of their stock (not publicly traded) or equities, and more than 80% of its assets are related to the farming operation.
Tax Implications Of Chapter 12 Sales
One significant benefit that Chapter 12 has over other bankruptcy chapters, is the ability to discharge tax liability arising from the sale of farm assets. In some cases, asset sales are unavoidable, or may be part of the strategic plan prepared by the Debtor and the Chapter 12 Attorney. In many farm sales, huge capital gains triggered by the sale will result in large tax liabilities. However, those tax liabilities can be treated as dischargeable debt, and in many cases do not need to be paid. This is a fact specific inquiry, so must be analyzed closely by an attorney familiar with Chapter 12 issues.
Contact Us To Determine If Chapter 12 Is An Option For You
The chapter 12 bankruptcy attorneys at Richmond & Richmond LLC can help with your farm or fishery’s bankruptcy and restructuring needs. We have experience helping struggling family farmers restructure their debts from filing through discharge and continue their family tradition in farming. We are the team you can trust for high-quality and experienced legal services personalized to your needs.
They will review your specific situation in order to analyze the amount of debt, the percentage of the debt that comes from the farming operation, and the percentage of income that comes from the farming operation in order to determine if Chapter 12 bankruptcy is an option for you.
We are a debt relief agency. We help people file for relief under the Bankruptcy Code.