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Chapter 12 Bankruptcy: Family Farmer

Despite recent rains, the drought on the West Coast has continued for several years. The snow pack can take several seasons to rebuild, and groundwater can take even longer. We’re all doing what we can to conserve water in our homes, and some reductions are even mandatory.

Farmers feel the biggest impact of this restriction since their crops depend on water and they depend on their crops for income. Some farmers choose to leave some of their fields fallow, which decreases their profits. Others pump groundwater, which can have long-term environmental effects. These circumstances may force them to consider selling (or losing) their farms and homes or filing bankruptcy.

A Chapter 12 bankruptcy may be the best choice for farmers, rather than a 7 or 13. This is also known as the family farmer bankruptcy, and it can be used to protect the property and assets they’ve worked so hard to acquire.

Saving the Oregon Farm

 Similar to a Chapter 13, Chapter 12 restructures debt. The person filing makes payments over a 3-5 year period. The farm can continue to operate while keeping up with their financial obligations. To be eligible for this type of bankruptcy, individuals or couples must make at least 50% of their income through the farm. Half of their debt, not to exceed $4,031,575, must also be due to the farm operation.

Before filing, we’ll look at several scenarios to set you up for the best outcome. We’ll need to file a voluntary petition for relief, along with a proposed repayment plan. The court trustee will evaluate your case within 45 days, and then either reject or approve our proposed plan.

How it Works

 In order to prepare your plan, we’ll look at not only your farm-related debts and expenses but also your personal income and living expenses. We’ll need to ensure that all priority debts are covered, and any remaining disposable income will be allocated to other debts equally. We’ll work together to finalize a realistic budget that will allow you to take care of your needs and keep your farm operating. 

 If you have any farm-related secured debts, we’ll consider “cramming down” the debt. There are details to consider, but basically, the amount you owe is reduced to the value of the debt collateral. Any remaining debt would be converted to unsecured debt, which is often not paid at all during your repayment plan and is then discharged once your plan is completed. 

 The trustee is looking out for the “best interest of your creditors,” and must ensure that your creditors receive at least what they would in Chapter 7. Your income and living expenses will be taken into consideration, as well as the type and total of your debt.  

 

Family Tradition

 Many farmers come from a long line of proud workers who have maintained the same land for generations. This makes droughts and other hardships even more difficult and disappointing to deal with. Fortunately, a Chapter 12 can preserve tradition and allow the family farm to keep running. 

November 11, 2016 / General

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