When many people think about bankruptcy, what normally comes to mind is what is represented in Chapters 7 and 13 of the Bankruptcy Code. In Chapter 7, you can discharge all of your debts and, in return, may lose non-exempt assets. Under Chapter 13, you may hold on to your assets, such as their home, but devote income in the near future to repaying your outstanding debts. Under both forms of bankruptcy, there are limitations to what you can do to modify your debts.
However, in states like North Carolina—composed largely of rural areas dotted with thousands of acres of farmland and abutting the ripe fishing grounds of the Atlantic—the lesser known Chapter 12 bankruptcy can be exceptionally helpful to working families who might otherwise be bankruptcy bound. Under the Bankruptcy Code, these protected groups have special rights, not found in the more common areas of Bankruptcy law.
In the special four-part series, entitled “Chapter 12 Bankruptcy,” we’ll introduce the concept of Chapter 12 along with the special rights related to this protection, as well as examine specifically how this process works for farming and fishing families, what you can expect at a Chapter 12 hearing, and the results of this type of bankruptcy discharge.
As mentioned, family farmers and family fishermen have special rights within the safe harbors of the Bankruptcy Code. For instance, a Chapter 12 bankruptcy can be attractive to qualifying parties, because, under this type of protection, creditors cannot file an involuntary bankruptcy petition against a family farmer or fisherman to recover even some of their money. Additionally, under a Chapter 12 case the debtor is allowed to modify the mortgage lien on a farmer’s home or fisherman’s residence, important to not only stop foreclosure but also modify the terms of the loan.
But, first and foremost, it’s important to understand who (or what) constitutes a family farmer or fisherman.
According to the Bankruptcy Code, a family farmer is:
- a person or married couple (or, in some cases a corporation owned or controlled by a single family) engaged in a farming operation with debts not more than $3,237,000;
- no less than half of these debts (except for the residence) come from the farming operation for either the current year or each of the past two years; and
- the family farmer must be involved in “farm operations” which is a rather broad term. To be eligible for chapter 12, the family farmer must have a regular income, sufficiently stable to be able to make regular monthly payments during the term of the Chapter 12 plan.
Similarly, a family fisherman is:
- a person or married couple (or in some cases) a corporation owned or controlled by a single family) engaged in a commercial fishing operation with debts not more than $1,642,500;
- at least 8% of these debts (except for the residence) stem from the fishing operation for either the current year or each of the past two years; and
- the commercial fisherman must be involved in “commercial fishing operations,” also a broad term. To be eligible for chapter 12, the family fisherman must have a regular income sufficiently stable to be able to make regular monthly payments during the term of the bankruptcy plan.
While North Carolina has many urban areas, plenty of family farms and fisheries still exist throughout the state. If you are struggling with mounting debts, and believe that bankruptcy may be your lifeline, visit the experienced attorneys of The Law Offices of John T. Orcutt online.