Single or married farmers or fisherman, farm or agriculture corporations, LLCs, or partnerships are eligible to ask for debt relief and reorganization under Chapter 12 bankruptcy.
The eligibility criteria for Chapter 12 are fairly stringent. 50% of debts must be from the farming operation, and 50% of the annual income must also be from the farm. The total debt cannot be over $4,031,575.00 for farmers and over $1,868,200.00 for commercial fishermen. In addition, farmers or fishermen must have a regular annual income.
Like Chapter 13, the reorganization and repayment plan is from 3-5 years.
Chapter 12 is more streamlined, less expensive, and less complicated than the better known Chapter 13. But relatively few qualify, as the eligibility is quite specific to family farmers and family fishing operations.
Chapter 12 also provides an automatic stay provision for co-debtors.
The single biggest issue, though, for farmers under the jurisdiction of Chapter 12 bankruptcy court is the issue of capital gains taxes on the sale of land.
Farmers are subject to capital gains taxes on the sale of farmland to pay off debts under a Chapter 12 bankruptcy agreement. Even if the sale of land is mandated by the court for the satisfaction of debt, the IRS can assess capital gains and that tax liability is not part of the bankruptcy agreement. A bill introduced in Congress in 2012 to stop assessment of capital gains for a farm under bankruptcy protection failed. The latest IRS publication on this issue details how the IRS will calculate capital gains taxes for land sold to pay off debts.
For more information about bankruptcy, or to consult a Troy, Ohio bankruptcy attorney, please contact us.