Chapter 12 Bankruptcy is similar to Chapter 13 in that it allows an individual to file bankruptcy without losing everything. However, there is some liability involved. Where it is different is the fact that Chapter 12 is reserved for farming businesses, fishing businesses, and any businesses similar to these. As long as there has been a steady stream of income in previous years, Chapter 12 is allowed.
One reason why Chapter 12 is reserved for those in farming and other such businesses is because the debt to income ratio is usually too high for these businesses. Because of this, they can't turn to Chapter 11 or Chapter 13. Also, a filer must have more than 50% of their income coming from the business. This means if it is a part time business and the owner has another job as well, 50% of their income must come from the business being filed upon.
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Here are some other requirements for Chapter 12 Bankruptcy:
* There needs to be steady income coming in for at least 3 years
* There is a certain amount that your debt cannot exceed
* The debt must solely be from the business
* A single family must own over 50% of the company stock, which means there should be no public trading of stocks
* The family must be the ones who have control of the business
* The business must have an 80% value
* The total debt must match the total debt of the individual
There is also some documentation that needs to be provided. That documentation includes:
* A list of creditors, what is owed to them, and what type of claim they have on the business
* Income amount and its source
* A list of business and personal property owned
* A total list of expenses related to the business
Even if a spouse does not participate in the business, the name of that spouse must also be included in the Chapter 12 filing.
As for what happens next, there is a meeting between the debtor and the creditors. This is how a new payment plan is put in place. Once the plan is decided upon, the proper paperwork must be filed within 90 days. In order to meet repayment, you must offer something equal or greater in value to the courts to satisfy the debt. As long as the debt is satisfied, then you don't have anything else you have to worry about.
When it's all said and done, you have not lost everything. You might lose something to satisfy the debt, but you can offer something to satisfy the debt and go about your business with a clean slate. Because of how this is done, it does seem somewhat difficult to go about, but a bankruptcy attorney does assist in these proceedings to ensure that you have all of the proper paperwork.
Just remember that you will have to wait three years before you can ever take the Chapter 12 route again. As per the requirements, 3 years of steady income is required. But when you can start again debt free, starting over shouldn't be an issue.
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