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People who are considering bankruptcy often wonder whether they will be able to keep their property, and farmers are no exception. People who keep livestock and grow crops for a living are often worried that by filing for bankruptcy, they will end up putting themselves in a position where they will be forced to part with the very property that allows them to make a living.
Individuals who keep livestock, professionally, as a side-business, or as a source of food may specifically have concerns about whether they will be able to keep their animals if they file. This depends on a number of factors, including the type of bankruptcy for which you file and whether you can claim your livestock as exempt.
Different Types of Bankruptcy have Different Outcomes
In a Chapter 7 bankruptcy, a debtor’s non-exempt assets are sold off and the proceeds are used to pay off creditors. As a result, any livestock that you owned that was non-exempt would likely be seized by the bankruptcy trustee. That being said, bankruptcy law provides exemptions under which you may be able to protect your livestock.
For example, Ohio bankruptcy exemptions allow people to exempt up to $12,625 in personal property (not to exceed $600 in any one item), including animals that are held primarily for personal, family, or household use. Ohio Revised Code 2329.66.
If you are filing for Chapter 12 bankruptcy, however, things are much different. Chapter 12 is a type of reorganization bankruptcy that is only available to family farmers, fishermen, or ranchers. Under Chapter 12, you need to be able to establish that the majority of your debts are farming-related and that you make most of your money through your farming operation. Importantly, both businesses and individuals can file for Chapter 12, making it suitable for people who operate their farms as sole proprietors and those who have chosen to operate their farms through a business entity such as an LLC.
One of the main benefits of filing for a reorganization bankruptcy is that it allows a business to keep its assets, including livestock, while it is in bankruptcy. In addition, during the period of the bankruptcy, the filer is protected from any collection activity from creditors, including repossession or foreclosure.
Chapter 12 Bankruptcy Eliminates Barriers for Farmers
In a Chapter 12 bankruptcy, debtors propose a payment plan to the court that will last anywhere from three to five years. In most cases, the plan will last for three years unless the court approves a longer period for cause. If there are any claims for child support or alimony at issue, however, the plan must be for five years unless the plan proposes to pay 100% of these claims.
According to the US Courts website, Chapter 12 eliminates many of the barriers to relief that farmers would face under Chapter 11 or 13. For example, Chapter 12 is more streamlined and less complicated than Chapter 11 and it allows for higher debt limits than those found under Chapter 13.
Requirements for Filing Chapter 12 — and Keeping Your Livestock
There are different requirements for individual or married couple filers and corporate or partnership filers under Chapter 12. The criteria for an individual or an individual and spouse are as follows:
- The individual or husband and wife must be engaged in a farming operation or a commercial fishing operation.
- The total debts (secured and unsecured) of the operation must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
- If a family farmer, at least 50%, and if family fisherman, at least 80%, of the total debts that are fixed in amount (exclusive of debt for the debtor’s home) must be related to the farming or commercial fishing operation.
- More than 50% of the gross income of the individual or the husband and wife for the preceding tax year (or, for family farmers only, for each of the 2nd and 3rd prior tax years) must have come from the farming or commercial fishing operation.
On the other hand, the criteria for a corporation or partnership are:
- More than one-half the outstanding stock or equity in the corporation or partnership must be owned by one family or by one family and its relatives.
- The family or the family and its relatives must conduct the farming or commercial fishing operation.
- More than 80% of the value of the corporate or partnership assets must be related to the farming or fishing operation.
- The total indebtedness of the corporation or partnership must not exceed $4,031,575 (if a farming operation) or $1,868,200 (if a commercial fishing operation).
- At least 50% for a farming operation or 80% for a fishing operation of the corporation’s or partnership’s total debts which are fixed in amount (exclusive of debt for one home occupied by a shareholder) must be related to the farming or fishing operation.
- If the corporation issues stock, the stock cannot be publicly traded.
Seek Help from a Chapter 12 Bankruptcy Attorney
Farmers and others who are experiencing financial problems should not assume that they will lose everything if they file for bankruptcy. In many, cases they assistance of an attorney can help ensure that you keep your property while reducing or even eliminating your debts. The forum has several experienced bankruptcy attorneys at hand to review your case for free today, and at no obligation.