Should I Choose a Chapter 11 or 12 Bankruptcy?

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• Chapter 12
• Chapter 11

If you are Florida family farmer or family fisherman facing mounting debts, you have multiple options for relief under the federal Bankruptcy Code. You can file for bankruptcy under Chapter 11, which is commonly used by businesses to reorganize their debts and operations. Or you can take advantage of Chapter 12, which contains special provisions for family-owned farming and fishing businesses. The best choice for your family will depend on a number of factors, but here is a brief overview of how these chapters work. John Moffa, a bankruptcy attorney based in Plantation, Florida, notes that anyone considering bankruptcy needs to make a roadmap. “I’ve seen people file cases who didn’t have that roadmap, and they just run from one crisis to another,” he says. “One of the things I always ask my clients is, ‘What do you expect from the bankruptcy?’ I don’t want to have clients going into any bankruptcy case with unrealistic goals.”

Chapter 12

As noted above, Chapter 12 is expressly designed for family farmers and family fishermen. The Bankruptcy Code actually contains a number of criteria that must be met. Both individuals (and their spouses) and corporations may qualify for Chapter 12, although the standards are slightly different. For individuals and married couples, the qualifications include the following:

1. They must be engaged in a farming or commercial fishing operation.
2. Their total debts from the operation cannot exceed a certain threshold, which is currently $4,153,150 for farms, or $1,924,550 for commercial fishing.
3. At least 50 percent of their total debts–excluding any debt related to the individual or couple’s home–must come from the farming operation; or in the case of commercial fishing, at least 80 percent of their total debts.
4. At least 50 percent of the individual or couple’s gross income must come from the farm for the previous three tax years, or for commercial fishing the previous tax year.

The qualifications for corporations are similar. The main caveat here is that at least 50 percent of the corporation’s outstanding stock or equity must be owned by a single family or its relatives, and the company cannot be publicly traded. When filing for Chapter 12, the debtors must submit a plan of repayment with the bankruptcy court. Under this plan, the debtors make fixed payments to a court-appointed trustee, who then distributes the funds to any creditors. The plan itself can last up to 5 years and must repay certain “priority” claims in full. Secured creditors must also receive at least the value of their collateral. Once the plan is completed, any remaining unsecured debts will be discharged by the court.

Chapter 11

A Chapter 11 filing is considered a “reorganization” of a business, which may include a family farm or commercial fishing operation owned by an individual. Unlike Chapter 12, there are no debt limits for a Chapter 11 filing. Nor does a family farm or commercial fishing operation need to meet the other income qualifications listed above. Within 120 days of a Chapter 11 filing, the debtor has the exclusive right to file a reorganization plan with the bankruptcy court. This type of reorganization is more extensive than a Chapter 12 repayment plan. It typically involves downsizing or restructuring the debtor’s business operations. Creditors also play a greater role in a Chapter 11 bankruptcy. Certain creditors may be entitled to vote on the debtor’s reorganization plan before it is approved by the court. And after the debtor’s exclusivity window expires, the creditors may actually file their own competing reorganization plan. Overall, Chapter 11 bankruptcy is often more expensive and time-consuming than a Chapter 12 bankruptcy.  Moffa notes that, even for a small case, it can be a minimum of approximately $10,000. This is why it is important to consult with an experienced Florida bankruptcy attorney before proceeding with either option. For For general information on bankruptcy law, bankruptcy lawyers, the bankruptcy process, bankruptcy filing, liquidation, foreclosures, liens, Chapter 13 bankruptcy, Chapter 7 bankruptcy and other types of bankruptcy, see our bankruptcy overview.