Chapter 7 bankruptcy, or a liquidation bankruptcy, involves the sale of any non-exempt assets, and is generally the fastest route to a discharge of debt.. Chapter 13 offers the option of a payment plan, or wage earner's plan, that allows a person to create a structure to catch up on missed mortgage or auto payments. Another form of bankruptcy that is not as often filed but relevant to many, especially in states like North Carolina, is Chapter 12, or Family Farmer and Family Fisherman bankruptcy.
Chapter 12 bankruptcy was established in 1986 to support family farmers and fisherman who are struggling economically. Similar to Chapter 13, it allows for a repayment plan of three to five years but in most cases, all debts need to be settled within three years. Specifically, Chapter 12 is designed around those who carry debt that is no less than 80% occupational costs. And, a person filing Chapter 12 needs to owe less than $1,500,000.
While Chapter 13 is meant for the more common wage earner, or someone who has regular, balanced income, farmers and fisherman face unique circumstances in their efforts to make money. Natural disasters, difficult growing conditions and Acts of God, for example, play a much more important role in a farmer of fisherman's ability to pay off debt. Moreover, intrinsic to being either type of professional is the cost of equipment. Boats, tractors, and machinery are considered capital expenditures and therefore are often financed. Thus, farmers and fisherman are almost operating on substantial debt. Chapter 12 allows for the forgiveness of liens on property that is considered critical to the work being performed.
Additionally, leases for land and boat slips eat into their income and on top of that, farmers and fisherman are also affected by prices set on Wall Street, making their professions even substantially more subject to hardship than most 9 to 5 employment situations.
Chapter 12 is more streamlined than Chapter 13 because it is designed around the unique working conditions of its constituents and the typical size of the debt owed, which is usually much larger than debt subject to other forms of personal bankruptcy. And, it takes into consideration the seasonal nature of a farmer's income.
Like other forms, Chapter 12 bankruptcy begins with the filing of a petition in the bankruptcy court that serves the region where the person filing lives or has an established business presence. It costs $200 and the paperwork that is required includes:
- schedules of assets and liabilities
- a schedule of current income and expenditures
- a schedule of executory contracts and unexpired leases
- statement of financial affairs
Federal law allows those filing Chapter 12 to do so as an individual or as a corporation or partnership, and each classification has it's own unique set of qualifications. Once the petition for Chapter 12 is filed, collection efforts, for the most part, are halted. Creditors are not allowed to begin new or continue collection efforts, lawsuits or other forms of financial restitution. There are some exceptions to the automatic stay provision, which your bankruptcy attorney can explain in full detail.
For more information on your options under Chapter 12 bankruptcy, and on all other forms of bankruptcy, contact the folks on the other side of this blog.
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