- September 14, 2024
- Kelvin Birk
- Bankruptcy
When dealing with overwhelming debt and the impending closure of your farm, you might consider filing for bankruptcy as a way out. The issue lies in knowing what type of bankruptcy to file.
Two common options for farm owners are Chapter 12 and Chapter 7 bankruptcy. But which one is best for you? This blog breaks down the key differences between the chapters, focusing on their features, benefits, and drawbacks. In the end, you can make an informed decision on which option is suitable for your farm.
If you are dealing with overwhelming debts and considering bankruptcy, our bankruptcy lawyers at Birk Law Firm can help. We have years of experience representing people in financial trouble and can help you. Contact us at 573-332-8585 for a consultation.
Why choose our Cape Girardeau bankruptcy attorneys?
At Birk Law Firm, we understand the unique challenges faced by Missouri farmers, which is why we dedicate time and resources to helping them overcome their financial difficulties. We have extensive experience with Chapter 12 and Chapter 7 bankruptcy and have successfully guided farmers in Missouri to find relief through bankruptcy.
We can help you restructure your debts and keep your farm running. Also, we provide our clients with compassionate representation and will work with you throughout the process to ensure you come out on top. Our initial consultations are free, so do not hesitate to contact us.
We understand no two clients are the same, so we provide personalized attention to all our clients to help them reach their goals.
Understanding Chapter 12 Bankruptcy in Missouri
Chapter 12 bankruptcy is primarily for family farmers and fishermen with “regular annual income” who want to reorganize their debts. With it, you can continue running your farm while repaying your debt. To qualify for this chapter, you must be actively engaged in farming operations, and your total debts must not exceed the threshold for the year in which you’re applying. Also, 50% of the money you owe must be from farming operations or related to it, and more than 50% of your gross income must come from farming.
Chapter 12 bankruptcy has benefits and drawbacks. Some of the advantages of this chapter include the following:
- Debt restructuring: You can restructure your debt into a manageable payment plan spanning three to five years.
- Continuous operation: Your farm will continue, allowing you to generate income and maintain your livelihood.
- Reduced interest and penalties: You might get lower interest rates and penalties on some debts.
- Flexible payment plan: You can adjust your debt repayment based on your farm’s cash flow, considering the effects of seasonal variations on your income.
The drawbacks of Chapter 12 bankruptcy are:
- Strict eligibility requirements: You must meet specific criteria to be eligible to file under this chapter.
- Complex process: The process of filing and execution is complex and requires detailed documentation. Also, you must adhere to the court-approved repayment plan.
- Ongoing court supervision: The bankruptcy court will continue to oversee you until you repay your debt. This ensures you stick to the repayment plan and do not default.
Understanding Chapter 7 bankruptcy in Missouri
Chapter 7 bankruptcy is for individuals and some businesses that cannot repay their debts. It allows debtors to liquidate non-exempt assets to pay off their creditors, and potential debts are discharged under this chapter. To qualify for Chapter 7 bankruptcy, individual applicants undergo a means test, but this is not applicable to a business entity.
Since Chapter 7 is a liquidation proceeding, it is the best option for farmers who cannot continue to farm and must terminate their operation, but it is not a good choice if you wish to continue farming. Like Chapter 12 bankruptcy, Chapter 7 has its benefits and drawbacks.
When deciding between Chapter 12 and Chapter 7 bankruptcy, consider your circumstances, goals, and the financial state of your farm.
The advantages of Chapter 7 bankruptcy include the following:
- Debt discharge: You get a fresh start by discharging your unsecured debts.
- Simpler process: It is quicker and less complex than Chapter 12 and concludes in a few months.
- Immediate relief: Once you file for Chapter 7 bankruptcy, debt collection by creditors halts, giving you relief.
The disadvantages of this chapter include the following:
- Asset liquidation: To pay creditors, you’ll liquidate your non-exempt assets, including essential farm equipment.
- End of operations: Since essential farm equipment is liquidated, it may lead to the closure of your farm.
- Credit impact: Chapter 7 bankruptcy significantly affects your credit, staying on your credit for ten years.
Choosing the right chapter for your Missouri farm
With all we’ve said, you might still be unclear on the right chapter for your farm. So, we have summarized it for you below. Consider Chapter 12 if:
- You want to continue farming and only need time to repay your debts.
- You meet the eligibility requirements based on debt limits and income sources.
- You need time to restructure your debt and pay it off, and your financial difficulties are only temporary.
Consider Chapter 7 if:
- Your debt is overwhelming and significantly exceeds the value of your assets and income potential.
- Restructuring your debts is not feasible.
- The closure of your farm is inevitable, and you just want to start afresh on a clean slate.
- Your non-exempt assets are minimal, and you will lose less if you liquidate.
Resources for Missouri farmers facing financial difficulty
There are several resources available for struggling Missouri farmers. Some of them are:
- Farm Services Agency (FSA) — They run a loan program.
- Missouri Agricultural and Small Business Development Authority (MASBDA) — provides grants, tax credits, and loan guarantees
- University of Missouri Extension — offers financial planning and farm management advice
- Agricultural Mediation Program — provides mediation services for resolving disputes involving credit issues, and loans
These resources provide crucial support and will help you navigate the challenges you face while working toward financial stability.
Do you need help with filing for bankruptcy? Contact us now!
Our attorneys at Birk Law Firm are available and committed to helping you navigate bankruptcy. We will help you understand your situation and work tirelessly to help you achieve a positive outcome. Call us at 573-332-8585 to learn more about our services and schedule a free consultation.
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 ]
