Chapter 12 Bankruptcy in Texas

Unlike Chapter 13 individual debt adjustment and Chapter 11 reorganization, only few people file a Chapter 12 bankruptcy in Texas or in the nation. A Chapter 12 bankruptcy is used mostly for “family farmers” of “family fishermen” whose have debts that add to a certain amount. Fishing or farming should also be the primary source of income for the fishermen or farmers.

Chapter 12 Bankruptcy in Texas

chapter 12 bankruptcy texasOf course, you can file a Chapter 11 and Chapter 13 for a farm, ranch or similar business in the right circumstances. But a Chapter 12 was specifically created for family farmers and family fishermen and it has distinct advantages. Under Chapter 12 an expeditious bankruptcy process was used in the 1980s to reorganize the farmers’ debt and preserve their farms.

It was meant to be a temporary solution but Bankruptcy Abuse Prevention & Consumer protection Act (BAPCPA) was added to the bankruptcy law. This divided the Bankruptcy code for “family farmers” and “family fishermen” into two categories. The first category is an Individual and spouse or individual and the second category is a corporation or partnership.

See also…bankruptcy alternatives, and debt consolidation.

Chapter 12 Requirements

This made Chapter 12 a permanent part of the united states bankruptcy law.  Fishermen or farmers that fall into the “individual and spouse or individual”, need to meet four criteria as of the date the petition is filed to qualify for relief under Chapter 12 Bankruptcy. They include:

  • It is a requirement that the individual or husband and wife must be engaged in a farming operation or a commercial fishing operation
  • The secured and unsecured total debt of the operation should not be more than $3,237,000 for a farming operation. It should not be more than $1,500,000 for a commercial fishing operation
  • The total debt that are fixed in amount (debt on the family home excluded) must be related to the farming or commercial fishing operation. If the debtor is a family farmer, at least 50% of the debts must be related to the farming operation. At least 80% for the family fisherman.
  • If more than 50% of the gross income of the individual or the husband and wife for the preceding tax year comes from the farming or commercial fishing operation, they qualify.

Corporations & Partnerships

The second category requires a corporation or partnership to meet certain criteria to fall within the category of debtors eligible to files as family farmers or family fishermen. They include:

  • Over 80% of the value of the corporate partnership assets must be related to the fishing and farming operation
  • The corporation or partnership should not have a debt that is more than $4,153,150 for a farming operation
  • The corporation or partnership must not exceed $1,924,550 for a commercial fishing operation
  • The family or the family and its relatives should be actively participating in the running of the commercial fishing or farming operation
  • One family or one family and its relatives must own more than one-half the outstanding stock or equity in the corporation or partnership

There are other criteria that you will have to meet for the second category.