Is Chapter 12 Bankruptcy for Consumers?

If you are considering consumer bankruptcy, you have probably done some research into your options. You may know that most people who file for personal bankruptcy will file either for Chapter 7 bankruptcy or Chapter 13 bankruptcy. In some situations in which a consumer does not qualify for Chapter 13 bankruptcy because of too much debt, that individual may file for Chapter 11 bankruptcy. Yet if you have been reading about liquidation and reorganization bankruptcy types, you may have come across information about Chapter 12 bankruptcy. Is Chapter 12 bankruptcy ever intended for consumers?

In short, Chapter 12 bankruptcy is a specific type of bankruptcy that is not available to most consumers. However, we want to provide you with more information about it, and to clarify when and why Illinois residents may seek bankruptcy protection under Chapter 12.

What is Chapter 12 Bankruptcy?
You may have heard that individuals in Illinois are filing for Chapter 12 bankruptcy, and that it costs less and is more streamlined than Chapter 11 bankruptcy. Would an individual ever be better off filing for Chapter 12 bankruptcy than Chapter 13 bankruptcy? To answer that question, you will need to understand the individuals and entities for whom Chapter 12 bankruptcy is designed.

Chapter 12 bankruptcy is a type of reorganization bankruptcy that is designed for—and only for—“family farmers” or “family fishermen” with a regular annual income. To be clear, if you do not fall into the category of “family farmers” or “family fishermen,” you are not eligible for Chapter 12 bankruptcy. As the U.S. Courts explains, Chapter 12 “enables financially distressed family farmers and fishermen to propose a plan and carry out a plan to repay all or part of their debts.”

When do Consumers Qualify for Chapter 12 Bankruptcy?
When it comes to individuals (as opposed to businesses), who counts as a family farmer or family fisherman? Under Chapter 12, for an individual to qualify, that individual (and his or her spouse, if a married couple wants to file together) “must be engaged in a farming operation or a commercial fishing operation.”

In addition, once you have qualified either as someone engaged in a farming operation or a commercial fishing operation, there are restrictions based on income and debt. These are the additional requirements:
  • Debts from the family farming operation cannot exceed $4,153,150, and debts from a family commercial fishing operation cannot exceed $1,924,550;
  • At least 50% of the debts must be related to a farming operation (if you are qualifying as a family farmer) or 80% of the debts must be related to the commercial fishing operation (if you are qualifying as a family fisherman); and
  • More than 50% of the gross income of the individual or married couple must have come from the family farming or commercial fishing operation.
Discuss Your Case with an Oak Park Bankruptcy Lawyer
As you can see, this is a specific type of bankruptcy for which most consumers will not be eligible. However, if you have questions about your eligibility for consumer bankruptcy, an experienced and compassionate bankruptcy lawyer in Oak Park can help. Contact the Emerson Law Firm for more information.


See Related Blog Posts:

Update on Department of Education and Debt Collection

Consumer Bankruptcies Increase Nationwide



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