- March 7, 2025
- Kelvin Birk
- Bankruptcy
When things go bad economically, family farmers can find that their home and their livelihood are both at risk due to factors they can’t control. Climate change, extreme weather, fires, crop failures, and market and seasonal fluctuations can all negatively impact their income and leave them with debts they are unable to pay.
Taking into account the unique challenges and problems of family farmers, the United States Bankruptcy Code has created a special type of bankruptcy – Chapter 12 – that helps farmers ride out financial difficulties and provides a way to get out of debt. Chapter 12 bankruptcy offers a special path that allows financially distressed Missouri family farmers to reorganize their debts and potentially save their farming operations.
Is Chapter 12 the best option for your family farm? A consultation with an experienced Missouri bankruptcy lawyer can help you determine whether you are eligible for Chapter 12, as well as whether bankruptcy or some other debt-relief solution is right for your individual situation.
Understanding Chapter 12 Bankruptcy
Chapter 12 bankruptcy is for family farmers who have ‘regular annual income’ from their operations and wish to repay all or part of their debts and get a fresh financial start. Under Chapter 12, debtors come up with a plan to repay creditors over a period that is generally three years unless the court approves a period of up to five years “for cause.” Terms of Chapter 12 are more favorable for reorganization and more accessible and less complicated and expensive than a Chapter 11 or Chapter 13 bankruptcy proceeding would be. In addition, Chapter 12 has certain provisions that provide more favorable treatment of secured claims, and there are income tax advantages over other bankruptcy options.
To file a Chapter 12 bankruptcy, an individual or family-owned corporation must meet specific criteria and fall into two categories:
(1) an individual or individual and spouse
(2) a corporation or partnership.
Farmers must derive more than 50% of the gross from farming, and total debts must not exceed the amount allowable in Missouri. At least 50% of the farmer’s fixed total debts (excluding principal residence) must arise out of a farming operation. If the farm is a corporation or partnership, it must meet additional criteria.
Once you file a Chapter 12 petition, it will be evaluated to ensure that your annual income is sufficient to meet the payments you have agreed to. In addition, you must participate in credit counseling. The bankruptcy may be discharged after all payments have been made, hopefully leaving you in a better financial situation.
How Chapter 12 Can Protect Your Farm
Chapter 12 offers several advantages that allows protection for your Missouri farm. These include:
- Allowing farmers to retain their land and equipment while restructuring debts over a three- to five-year period. Debt repayment schedules can be seasonal to align with farm income, including balloon payments. Restructuring makes payments more manageable by methods that can include reducing interest rates, extending loan terms, and lowering the overall amount owed.
- There are certain “cramdown provisions” that provide more favorable treatment of secured claims, allowing debtors to reduce secured debts to the value of the collateral.
- Chapter 12 is more streamlined and less expensive than other forms of bankruptcy, such as Chapter 11 or Chapter 13. Creditors do not have to vote on the repayment plan, and there is no insolvency requirement needed to file.
- There is an automatic stay that goes into effect that stops most collection actions against the farmer and farm, prevents foreclosure proceedings, and allows daily farm operations to continue uninterrupted for the duration of the plan.
- Chapter 12 protects your assets, which will not be liquidated. Farmers retain possession and control of their property during the process and are able to sell farm assets free of liens to pay down debts while restructuring.
- There are certain income tax advantages to Chapter 12 over other bankruptcy options. Chapter 12 provides significant flexibility in selling assets to pay creditors, and tax claims from asset sales can be treated as unsecured debts that may be partially or fully discharged.
All of these benefits help you to preserve your farm and allow operations to continue while your debt is restructured.
The Chapter 12 Bankruptcy Process in Missouri
The Missouri process for Chapter 12 bankruptcy involves several steps. First, farmers must meet certain qualifications regarding income and debt and participate in credit counseling. This is to make sure that your annual income is sufficient to meet the payments of the plan. If you qualify, the procedure is as follows:
- Filing the petition: Your attorney files a petition with the bankruptcy court serving the area where you live or where your main place of business is. Unless the court orders otherwise, you must file documents that include schedules of assets and liabilities, current income and expenditures, executory contracts and unexpired leases, and a statement of financial affairs.
- Paying fees: These include a $200 filing fee and a $75-$78 administrative fee to the court.
- Trustee appointment: An impartial trustee is appointed to administer the case.
- Automatic stay: The automatic stay goes into effect and most collection actions by creditors are stopped.
- Creditors meeting: A meeting of creditors where you answer questions under oath about your financial affairs is held 20-35 days after filing.
- Repayment plan: Within 90 days of filing, you must submit a reorganization plan to the court that outlines how debts will be repaid.
- Confirmation hearing: Within 45 days of filing the plan, a confirmation hearing is held by the court to confirm or reject the plan.
- Plan implementation: Once approved, you begin making regular payments to the trustee, who distributes funds to creditors according to the plan.
- Completion: If you must complete all payments under the plan, you then receive a discharge order from the court that releases you from certain debts.
Get Help Filing for Chapter 12
Throughout the Chapter 12 process, you must adhere to certain requirements, cooperate with the trustee, provide required financial information, and possibly attend additional hearings or meetings. The procedure is complicated, so it can help to work with an experienced Missouri bankruptcy attorney.
Attorney Kelvin Birk is a Certified Public Accountant as well as a bankruptcy attorney, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows him to provide a deep understanding of your financial problems and the high level of service that meets your needs.
Call us at 573-332-8585 today for a free consultation to start working toward a brighter financial future and save your family farm.
Attorney Kelvin Birk
Kelvin Birk is a lawyer as well as a certified public accountant, with more than 30 years of experience in accounting and tax and business consulting, and more than 20 years of experience in numerous legal matters. This combined expertise allows our law firm to provide a level of service above that of other firms. Whatever your legal situation, your attorney at Birk Law Firm can counsel you as to the tax implications. We have experience in providing myriad legal representation services to residents of southeast Missouri and other areas.. [ Attorney Bio ]
