Despite a global pandemic, economic troubles, and social issues, fewer farmers filed for Chapter 12 bankruptcy between June 2020 and June 2021.
What Is Chapter 12?
Chapter 12 bankruptcy is a debt relief option available to farmers and fishermen with a regular income. In many ways, this type of bankruptcy is comparable to Chapter 13 – both allow the debtor to create a repayment plan over several years with the result of paying back the debt in full.
The difference between Chapter 12 and other bankruptcy options is the debtor: farmers. Instead of applying to smaller debts like Chapter 13 or carrying the high cost of Chapter 11, Chapter 12 is specifically designed for the financial hardships that farmers experience.
While applicants need to have a steady income, there are special allowances that account for seasonal income, which many farmers and fishermen receive in place of a steadier profit year over year. Another important thing to note is the language. Chapter 12 applies specifically to "family farmers" or "family fishermen," which means that debtors filing for bankruptcy must have a spouse or partnership.
If a debtor plans on filing with their spouse, they will need to gather financial information for both partners and submit it to the court. Partners and spouses are protected from consumer debts under Chapter 12, giving debtors the freedom to focus on their business expenses and reorganization plan.
Additionally, the court understands that things happen – hurricanes and tornadoes can destroy healthy crops, while droughts and water shortages make it nearly impossible to grow them in the first place. If this is the case, the court may grant a hardship discharge that essentially removes the debt if the debtor cannot pay it back due to circumstances outside of their control.
Where are Chapter 12 Bankruptcies Happening?
Farmers and fishermen across the country struggle with finances due to environmental conditions or rising costs of production. That said, some regions of the United States contribute more bankruptcy cases than others.
The Farm Bureau provided the following statistics Chapter 12 cases between June 2020 – June 2021:
- Northwest (WA, ID, OR, WY, MT) cases decreased by 54%
- Southeast (SC, MI, AL) cases decreased by 44%
- Mid-Atlantic (NY, PA, WV, VA, MA, NJ, DE) cases decreased by 38%
- Outside Lower 48 (AR, LA, TN, FL, GA, NC), cases decreased by 36%
- Southwest (TX, OK, UT, CO, NM, AZ) cases increased by 41%
- West (CA, NV) cases increased by 13%
- Northeast (ME, NH, VT, MA, RI, CT) cases increased by 12%
These statistics show that farmers in the Southwest are struggling the most, which is understandable as 2020-2021 has brought natural disasters and record droughts to the region. That's not to say that farmers in other areas aren't struggling, but a vast majority of farmers in the southwestern states are encountering more complications that are beyond their control.
Is This a Bad Thing?
Crops don't always turn out the way you expect, and shifting demand from consumers may pressure farmers to increase their output. These are normal, expected changes that may affect your financial position.
However, some things are beyond the pale. Wildfires in California, Oregon, and Washington have devastated crops and threatened National Parks, while droughts in Utah and Idaho make growing the sturdiest plants difficult.
The statistics in the previous section point to a marked improvement overall in terms of the number of Chapter 12 bankruptcies filed in 2020 and 2021. Slow but sure improvement is a good sign, and those who are still struggling financially have options.
For Farms and Families
Bankruptcy is often misunderstood as a devastating financial blow that indicates failure, but that couldn't be more untrue. For many people, bankruptcy is the key to unlocking a fresh start.
Weather, droughts, and economic issues are outside your control, but you can take steps now to protect your financial future. From Chapter 12 to bankruptcy alternatives, Buchalter & Pelphrey Attorneys At Law is here to help.
Contact our firm today for more information.