Own A Farm? Should You File Chapter 12 Or Chapter 13 Bankruptcy?

24 September 2015
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Do you own a farm and find yourself in financial difficulties? You may be considering bankruptcy. As the owner of a farm, you have options in a bankruptcy that aren't available to other debtors. If you make your primary living with your farm, you can file a Chapter 12 bankruptcy. But,should you? Would a traditional Chapter 13 work better for you? Your bankruptcy attorney, someone like Morrison & Murff, can help you navigate the choices, but you'll be ahead of the game if you go to your first appointment armed with knowledge. Here are the differences between Chapter 12 and Chapter 13 bankruptcies, so you will know which is best for you.

What Is a Chapter 12 Bankruptcy?

According to Bankruptcy.FindLaw.com Chapter 12 bankruptcy was designed specifically as a bankruptcy option for family farmers and fishermen. It allows you to create a plan to pay back all or part of your debts over a period of three to five years. The debts must be paid in that time, and the payments are structured each month to fit in with your budget and what it allows.

Most payment plans are generally for three years. If the plan includes any child support or alimony payments, however, it is required to be for five years, and must include all of your discretionary income in your monthly payment. No court can order a Chapter 12 payment plan to go for longer than five years in any instance.

To qualify to file for Chapter 12 bankruptcy as a farmer, you must have less than $3,544,525 in both unsecured and secured debt, and at least 50 percent or more of the debt must be from expenses from operating the farm. Also, at least 50 percent of your income must be from farming. The income from the farm and any other source must be stable, to support the payment plan that will be set up under a Chapter 12 bankruptcy.

What Is a Chapter 13 Bankruptcy?

This is a type of bankruptcy that can be used by any individual or business. Like a Chapter 12 bankruptcy, you organize a repayment plan to your debtors, with a cap of three to five years on paying it back, depending on your income. You and a trustee will get together and come up with a repayment plan, which the judge must approve before it is legal and your creditors must accept it.

To qualify for filing a Chapter 13 bankruptcy, you must have less than $269,250 in unsecured debt, and less than $807, 750 in secured debt. You must also have a steady source of income so you can make the payments.

Benefits of Both Bankruptcy Plans

One of the biggest benefits of both a Chapter 12 and a Chapter 13 bankruptcy is that you don't have to liquidate your assets like you often have to do in a Chapter 7 bankruptcy. You get to keep what you own. If you owe money on anything in your possession, you continue paying on it, but often end up paying it off for pennies on the dollar of the original purchase price.


If you own a farm and decide bankruptcy is the best way for you to handle your current financial difficulties, you can choose between a Chapter 12 and a Chapter 13. The Chapter 12 may be beneficial to you if you intend to keep farming and need assistance paying for some of your farming equipment. Otherwise, the Chapter 13 may be better. It is also possible that a different type of bankruptcy altogether might be right for you. The only way to know for sure is to contact a bankruptcy attorney and ask.